LONDON: The US dollar rose to a three-year high against a basket of currencies on Monday and was set for more gains on expectations the Federal Reserve could scale back stimulus by September after solid jobs data on Friday.
By contrast, the European Central Bank and the Bank of England were more likely to ease monetary policy, while the Bank of Japan was expected to continue with aggstimulus, keeping the euro, sterling and the yen weak.
The dollar index was at 84.425, having risen as high as 84.588 in Asian trade, its strongest since July 2010, after data on Friday showed employers added a higher-than-expected 195,000 new jobs last month.
The index jumped 1.5 percent on Friday, its best one-day gain in 20 months.
"It looks like we will have a clearer diversion, with growth gaining momentum in the US and the euro zone bumping along the bottom," said Niels Christensen, currency strategist at Nordea.
"I expect interest rate differentials to continue to move in favour of the dollar and to pull euro/dollar lower."
But he said investors may need more evidence the Fed will start scaling back asset purchases by September before the dollar extends gains beyond key chart levels. Federal Reserve minutes on Wednesday will therefore be closely watched.
Sentiment towards the euro could also be helped in the near term by the fact that Greece looks likely to reach a deal with foreign lenders on its latest bailout review and by an improved political situation in Portugal.
The euro was steady at $1.2834, staying close to a seven-week trough of $1.2806 plumbed on Friday. It remained pressured after ECB President Mario Draghi last week said interest rates would stay low for an extended period.
The next key levels for the euro are the mid-May low of $1.2796 and the early April low of $1.2740.
Sterling was steady at $1.4897, close to a four-month low of $1.4855 hit in Asian trade after an unexpectedly dovish Bank of England statement last week. A break below $1.4832 would mark its lowest in three years.
The dollar pared some of its gains against the safe haven yen, however, as Chinese shares fell 2.4 percent on concerns about Beijing's plan to choke off credit.
"On the whole, the dollar looks likely to gain further. But then again, if Chinese shares face more pressures, we could see a bigger dip in the dollar/yen," said Koichi Takamatsu, forex manager at Nomura Securities in Tokyo.
The dollar was at 101.18 yen, having earlier hit a one-and-a-half month peak of 101.54 yen.
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