The dollar rose this morning heading towards a two-month high against a basket of currencies after a Federal Reserve official's comments added to a view that the cycle of aggressive US interest rate cuts may be ending.
Kansas City Fed President Thomas Hoenig said late last night that rates will need to be raised in a timely way as the central bank grapples with a serious threat of inflation, prodding the euro towards a five-week low versus the dollar.
Analysts said that Mr Hoenig's statement, along with a string of surprisingly strong US economic data, was fuelling the view that US rates may have bottomed out at 2 percent, following a series of aggressive rate cuts over the past few months.
Also helping the dollar were comments from US Treasury Secretary Henry Paulson, who told the Wall Street Journal in an interview that "the worst is likely to be behind us" from the crisis spawned by surging defaults on US home mortgages.
Investors awaited data on euro zone retail sales and German industrial orders for further evidence on the health of the economy after a series of soft economic figures.
The European Central Bank is expected to hold interest rates steady tomorrow.
The euro slipped roughly 0.3 per cent to the day's low around $1.5465.
The dollar rose more than 0.2 per cent to 105.02 yen, nearing a two-month high around 105.70 yen touched on Friday. Against a basket of currencies, it rose 0.3 per cent to 73.198.