The dollar firmed against most major currencies on Monday as investors bet this week's Federal Reserve meeting and US economic data would cement the case for more dollar-supportive interest rate rises.
The dollar kept its bullish tone after upbeat economic data last week and the September reading for the US core personal consumption expenditure (PCE) index, the Fed's favourite inflation gauge, at 1330 GMT will shed more light on price pressures in the world's largest economy.
A Reuters poll of economists shows the core PCE index likely rose 0.1 percent.
"Interest rate factors are quite a dominant driver of currencies," said Tony Norfield, head of foreign exchange research at ABN Amro.
While the Fed is widely expected to hike interest rates again and repeat its hawkish message to markets on Tuesday, the European Central Bank's future policy is less certain, analysts said. The market is increasingly betting on monetary tightening in the euro zone but the timing of hikes, which would narrow the dollar's yield advantage over the euro, is uncertain.
By 1230 GMT, the euro was down 0.3 percent from late New York trading levels on Friday at $1.2032, after hitting a three and a half month low earlier in October.
The euro was up slightly at 139.71 yen, while the dollar traded over a third of a percent stronger at 116.18 yen, moving back towards last week's two-year high around 116.22 yen. The yen slipped even though the Bank of Japan raised its forecasts for prices and economic growth on Monday, outlining how it would phase out its unprecedented ultra-easy monetary policy.
Sterling gained ground on news that Spain's Telefonica SA had agreed to buy British mobile phone firm O2 Plc for 17.7 billion pounds.
It was up a third of a percent against the dollar at $1.7782 and gained nearly half a percent to 67.70 pence per euro.