The dollar eased on Monday on profit-taking after last week's late rally, but stayed above recent seven-month lows against the euro after US jobs data on Friday supported the case for further US monetary tightening.
A strong March jobs report hardened expectations that the Fed would lift its funds rate for the 16th time to 5 percent at its next meeting in May, and maybe even beyond that, just as the European Central Bank President Jean-Claude Trichet dashed expectations for a eurozone rate rise in May last week.
"The reverberations of Trichet's comments on Thursday, which have dampened expectations of a May rate hike, are really continuing to dominate market sentiment," said Kamal Sharma, currency strategist at Bank of America.
US President George Bush said the jobs report was evidence of an overall economic resurgence "that is strong and broad and benefiting all Americans".
The dollar rallied 15 percent last year against the euro and the yen on the back of a US tightening campaign that kicked off in mid-2004.
At 1141 GMT, the euro was up 0.11 percent on the day at $1.2100. It hit a seven-month high last week at $1.2333 before falling sharply in the wake of Trichet's comments and the US jobs report.
Some analysts said that while the euro's pullback last week sent bearish signals to the market there was still scope for further upside progress.
"From the euro's point of view as long as we can hold above $1.2040 the policy of buying euros on dips looks to be the right one," GNI currency strategist Mark Henry said.
The dollar hit a one-week high against the yen at 118.48 and the euro was steady at 143.24 yen but down from a record high of 144.92 hit last week.
The yen fell after Japanese Vice Finance Minister Koichi Hosokawa reiterated the ministry's recent statements that a rapid rise in Japan's long-term interest rates would harm the economy at a time when it remains in mild deflation.
The BoJ is expected to keep its near-zero rate policy unchanged at this week's meeting, but the consensus is for the BoJ to raise overnight rates in the third quarter, which would be the first such action in six years.
Italians voted for a second and final day on Monday in a bitter election that could end Prime Minister Silvio Berlusconi's five-year rule and return the centre left to power.