The dollar steadied in holiday-thinned trade on Monday, with its gains after last week's US jobs report capped by the view that rate rises in Europe and Asia would eventually diminish its yield advantage.
The dollar rallied on Friday after non-farm payrolls data showed the US economy shed fewer jobs than feared in September and confirmed expectations of further dollar-supportive tightening by the Federal Reserve.
The US economy shed 35,000 jobs in September, much lower than market expectations of a loss of 143,000 jobs, as lay-offs caused by Hurricane Katrina were offset by hiring in some regions, Labour Department data showed.
However, unemployment nudged up to 5.1 percent, the highest since May, from 4.9 percent in August.
Follow-through dollar buying was limited in Asia, with markets in Japan and the United States closed on Monday for public holidays.
The euro moved in a tight $1.2111-$1.2135 range - around Friday's late level of $1.2124 and off last week's peak at $1.2206 but still supported by comments from European Central Bank President Jean-Claude Trichet last week, which led investors to bet on an ECB rate rise by March.
The dollar barely moved against the Japanese yen, staying around 113.70/80 yen after Friday's 0.5 percent rise. It was still more than half a yen below the 16-month high of 114.41 hit early last week.
The dollar rallied nearly five percent against the yen in September before losing momentum last week.
Jan Lambregts, head of research at Rabobank in Singapore, said expectations of further rate rises had put the dollar "on steroids for a couple of weeks".
"Now the market has probably come to terms with the fact that the Fed is hawkish," he said.
"With the market having priced in much of the Fed tightening we think is left and now mulling what a hawkish ECB may be up to, relative rate spreads could become less of a support to the greenback and further downside in euro/dollar will be harder fought," Lambregts said.
Besides the ECB, Canada's central bank is expected to raise rates further after a survey on Friday showed companies expected inflation to pick up.
Though still some way off, the Bank of Japan (BoJ) is expected to end its ultra-easy policy of flooding the banking system with excess funds in April-June next year. A Reuters poll showed the BOJ would keep interest rates at zero before raising them in the second half of next year.
Analysts expect the Swiss central bank to raise rates by the end of the year to tackle inflationary pressures. The market has priced in two to three more rate rises by the Federal Reserve, seeing a possible peak in the fed funds rate of 4.5 percent, versus 3.75 percent now, a view that was unchanged by the jobs data.
The dollar still had a huge advantage in relative yield terms, with the fed funds rate 175 basis points above Europe's 2 percent benchmark rate and set to climb further, analysts said.
But its broad-based appreciation could slow to a more moderate pace, they said.
"While a hawkish-sounding ECB will protect the downside for the euro in the short term - support looks solid back to $1.2050 - the fragile euro zone economy argues against any interest rate increases for some time to come," said John Kyriakopoulos, a currency strategist at National Australia Bank.
The dollar's month-long rally faltered last week on technical factors, the view that the yen and euro had fallen too far and hawkish comments from the European central bank.
The threat of an attack on the New York subway system also undermined the currency on Friday.
Analysts said the dollar might also be hurt by the filing for bankruptcy of auto-parts maker Delphi Corp on Saturday, which, as the biggest bankruptcy in US automotive history, was expected to have a wider impact.