The dollar edged toward a five-week high versus major peers on Monday as the Japanese yen slid and investors increased bets on the Federal Reserve keeping monetary policy tight for longer.
The major event this week will be the release of U.S. consumer price data on Tuesday, which will drive expectations for the Fed's policy.
The dollar rose 0.7% to 132.48 yen, JPY=EBS as traders reassessed their expectations of the policy stance of the likely new Japanese central bank governor, who is due to be officially announced on Tuesday.
Sources said on Friday that former Bank of Japan board member Kazuo Ueda is set to become the next governor. In an interview the same day, Ueda said it was appropriate for the BOJ to maintain its current ultra-easy policy.
"Markets are starting to understand that the new governor won't be as hawkish as (investors) initially thought," said Naka Matsuzawa, chief strategist at Nomura in Tokyo.
"His stance on the current policy is more balanced, or a bit dovish," which will keep the yen weak, Matsuzawa said.
The euro and pound were both steady on the day against the dollar, with the European common currency at $1.0685 EUR=EBS and sterling GBP=D3 at $1.206, leaving the dollar index =USD , which tracks the U.S. currency against six major peers, at 103.61.
The index reached 103.8 in early trade. A break past 103.9 would have taken it to the highest since early Jan.
A strong reading from the U.S. CPI data would drive expectations of tighter monetary policy from the Federal Reserve, likely sending the dollar higher.
Much stronger than expected U.S. jobs data released at the start of February suggests the economy is performing strongly, meaning there is less danger for the Fed in keeping rates elevated.
"This week’s US CPI is one of the most pivotal prints in recent memory," said Barclays analysts in a note.
"The dollar has rallied on the back of ... US labor market strength but the evolving narrative is set to be updated yet again on Tuesday."
Money markets are positioned for a peak in U.S. interest rates of just below 5.2% around July, compared with the current target rate of 4.5-4.75%. FEDWATCH
The Swiss franc briefly strengthened after Swiss inflation data came in higher than expected.
The dollar slid to as low as 0.9220 Swiss francs CHF=EBS , before bouncing back. It was last at 0.9237 Swiss francs, up a whisker on the day.
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