The dollar rose about half a percent against the euro on Monday to hit its highest in nearly two weeks on speculation the US Federal Reserve may adopt a more hawkish stance on interest rates this week. It also rose about a third of a percent to a 1-week high against the yen in a fairly quiet Asian trading session, with financial markets in Tokyo closed for a holiday.
Dealers said stop-loss dollar buy orders at around $1.3260-75 against the euro and around 105 yen, generated some volatility.
"Euro/dollar is looking heavy. The issue is whether the tone of the FOMC (Federal Open Market Committee) statement turns hawkish," said Claudio Piron, currency strategist at J.P. Morgan Chase in Singapore.
The dollar staged a recovery against the euro and yen last week as investors wagered that the US currency's month-long slide might have gone too far and turned their attention to possible dollar-boosting interest rate moves.
On Monday, the euro traded as low as $1.3248 - a level last dealt on March 8 - against Friday's late New York level of $1.3311. It was at $1.3263.
The yen traded at 105.09 to the dollar - a level last dealt on March 14 - before recovering to 104.89, which is still 0.19 percent weaker than Friday's late New York level of 104.69.
An EU finance ministers agreement over the weekend to relax much-flouted budget rules that underpin the euro did not have any impact on Asian trading, market sources said.
Dealers said the holiday in Tokyo would keep the Asian session thin but choppy, with the focus on the risk of a surprise from the Fed's policy meeting on Tuesday.
"You should not read too much into the price action but at the same time you can't be complacent," said James Malcolm, currency strategist at Deutsche Bank in Singapore.
Both Piron and Malcolm said they do not expect the Fed to turn hawkish. But Piron said rising US bond yields and inflation should support the dollar in the short-run at least.
Markets already expect the Fed to raise the fed funds rate a quarter of a point to 2.75 percent, but they are more interested in the statement that will be released following the policy meeting.
The Fed has raised official interest rates by a quarter point at each of its last six meetings, taking the federal funds rate to 2.5 percent.
Benchmark interest rates in the euro zone are 2 percent. The dollar's three-year decline has had little impact on the US trade position. Data last week showed the trade gap widened to a near-record $58.3 billion in January.
Higher petroleum prices pushed the cost of goods imported to the United States up by 0.8 percent in February, slightly more than expected, a government report showed on Friday. Wall Street analysts had forecast a 0.7 percent increase.