"The dollar has been supported by some strong data but with the market already long dollars at these levels, new data has to surprise investors by a bigger margin to push it higher," said Manuel Oliveri, an FX strategist at Credit Agricole in London.

The dollar climbed half a percent last week, marking its second consecutive week of gains as hedge funds ramped up their dollar holdings by $3.4 billion to $28.7 billion last week, the largest since end-December 2016, according to latest data.

The euro fell a quarter of a percent to $1.15 and nearing a low of $1.1463, its lowest since Aug, 20, 2018 as a fresh rise in Italian bond yields weighed on investors' minds.

Italian politics remained a drag as the European Commission warned the country's budget deficit breached past commitments, leading Rome to insist it would "not retreat" from its spending plans.

Moves were limited by a lack of liquidity with Japan on holiday and the US bond market on a break. A sudden and steep rise in Treasury yields had underpinned the dollar for much of last week.

Yields on 10-year Treasuries hit a seven-year peak on Friday as data showed the unemployment rate falling to its lowest since 1969.

The big focus for dollar bulls this week will be the release of US CPI data on Thursday. Markets expect a 0.2 percent increase on a monthly basis in September, similar to last month and a bigger increase will bolster US rate hike bets in 2019.

Sterling fell 0.4 percent to $1.3077 as markets focused on any substantial breakthrough in Brexit negotiations Britain moved nearer to an exit deal with the European Union.

EU Brexit negotiators believe a deal with Britain on leaving the bloc is "very close", sources said, in a sign a compromise on a major sticking point - the future Irish border - might be in the making.