By Jemima Kelly
LONDON (Reuters) - The dollar extended its losses on Monday, retreating from its highest levels since 2003 as U.S. Treasury yields eased from recent peaks.
The greenback had surged more than 4 percent against a basket of currencies (DXY) in the wake of Donald Trump's shock victory in the U.S. elections, with investors reckoning a Trump administration would see an expansion of fiscal policy, boosting inflation and pushing up interest rates.
But after hitting an almost 14-year-high of 102.05 on Thursday, the dollar dipped on Friday and added to those losses on Monday, with the index down 0.7 percent at 100.82 by 0820 GMT, tracking 10-year U.S. Treasury yields lower (US10YT=RR).
The greenback fell 1.2 percent to 111.865 yen
Most analysts, though, said the dip in the dollar should not be interpreted as any kind of reassessment of the U.S. outlook, but simply as a corrective pullback. The greenback is still on track for its strongest two-monthly gains since early 2015.
"This is probably a mixture of some cooling down after the strong moves last week, and also we have seen interest rates have come down globally, and that has weakened the dollar, just as the dollar strengthened with the rising rates the days before," said UBS currency strategist Daniel Trum, in Zurich.
The euro climbed as much as 1.1 percent against the greenback
The reformist former prime minister is now favorite to become president, with a flash opinion poll showing he would easily beat National Front leader Marine Le Pen in a run-off second round. Markets worry that the far-right Le Pen, who has promised a referendum on membership of the European Union if she wins, would threaten the future of the currency bloc.
"He has been able to achieve quite a clear majority in the primaries so he's now quite a strong candidate going into the elections next year," said Trum.
The dollar could face some resistance this week ahead of potentially risk-laden events such as the midweek Organization of the Petroleum Exporting Countries (OPEC) meeting, and Italy's Dec. 4 referendum on constitutional reform.
Crude oil has slumped amid uncertainty over whether OPEC would reach an output deal. And Italy's referendum could rattle financial markets by prompting the country's government to resign.
Currencies will also have Friday's U.S. non-farm payrolls to contend with.
"Those who have been following the dollar's uptrend since early November now sit on large profits, so it is not surprising if some lock the gains in," said Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo.