Investing.com - The dollar was holding below three-and-a-half month highs against a basket of the other major currencies on Monday as U.S. Treasury yields pulled back after climbing above the 3% level for the first time in four years last week.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, rose 0.16% to 91.45 by 03:53 AM ET (07:53 AM GMT), holding below Friday’s highs of 91.79, the most since January 11.
The index climbed 1.37% last week, boosted by rising U.S. yields and the prospect of a faster pace of rate hikes by the Federal Reserve this year.
Expectations of higher interest rates make the dollar more attractive to investors seeking yield. The yield on 10-year U.S. Treasury notes rose above psychologically important 3% level for the first time since 2014 last week, amid rising inflation expectations.
The yield subsequently backed off that level and was last at 2.961%.
The dollar pushed higher against the yen, with USD/JPY adding on 0.18% to trade at 109.25, within reach of the two-and-a-half month high of 109.52 set on Friday.
Trade volumes remained thin with markets in Japan closed for a holiday and much of Asia set to be closed on Tuesday.
The euro was lower, with EUR/USD slipping 0.14% to 1.2113, holding above Friday’s three-and-a-half month lows of 1.2054.
The pound was at two-month lows, with GBP/USD losing 0.18% to trade at 109.24 after Britain's interior minister resigned on Sunday, dealing a blow to Prime Minister Theresa May as she navigated the final year of Brexit negotiations.
The pound had already come under pressure on Friday after data showing that Britain’s economy slowed sharply in the first quarter, prompting investors to slash expectations for a rate hike by the Bank of England next month.
Investors were turning their attention to a Federal Reserve meeting and the nonfarm payrolls report for April later this week.
The Fed is unlikely to raise rates at the conclusion of its two-day meeting on Wednesday after a hike in March, but the central bank’s statement will be closely watched amid speculation over whether it will raise rates four times this year, rather than the three signaled by policy makers.