"Dollar bulls are pinning their hopes on the sweeping tax deal leading to a more rapid pace of interest rate hikes from the Federal Reserve," said Jake Spark, US corporate hedging manager at Western Union Business Solutions, in Washington.

The Republican tax legislation would be the largest change to US tax laws since the 1980s. Republicans want to add $1.4 trillion over 10 years to the $20 trillion national debt to finance changes that they say would further boost the economy.

Talks will begin, likely this week, between the Senate and the House of Representatives, which already approved its own version of the legislation, to reconcile their respective bills.

Some market participants, however, were skeptical about how significant the impact would be on US growth.

"We are talking in the region of a 0.2 to 0.3 percent growth boost annually to what is already a very elevated trajectory of growth, and we don't expect that to have a major impact on US interest rates," said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London.

In mid-morning trading, the dollar rose to 113.08 yen , the highest since mid-November, and was last at 112.83, up 0.7 percent.

The euro, meanwhile, also fell against the dollar, down 0.4 percent at $1.1836, pushing the dollar index to trade up 0.4 percent on the day at 93.255

Investors are also focused this week on a key US non-farm payrolls report, with analysts forecasting a 200,000 jobs gain for November versus 260,000 the previous month.

This would be the last employment report before the Federal Reserve holds its last policy meeting for the year next week and markets have already priced in a rate hike for that meeting.

However, currency markets expect the Fed to raise rates only slightly more than twice next year and even though US 10-year US yields were higher on Monday, they remain effectively within a 15 basis-point range over the last two months.

Sterling, meanwhile, was the only major currency that gained against the dollar. It traded 0.3 percent higher at $1.3521 after a member of the European Parliament's Brexit group said there was a "very good chance" of a deal on an initial divorce package between Britain and the European Union.