TOKYO: The dollar hovered near a two-year high against a basket of currencies on Monday, underpinned by expectations the U.S. Federal Reserve will start its rate-tightening cycle sooner than expected.
The dollar index, a gauge of the greenback's strength against a basket of major currencies, was at 84.607, within reach of a two-year high of 84.797 hit Friday.
The yen eked out some lost territory after slumping to a six-year low against the dollar late last week, although the gains were modest.
The yen didn't get any help from the weekend meeting of G20 finance ministers and bank chiefs in Cairns, Australia, where currencies got little mention.
The G20 said they were close to adding an extra $2 trillion to the global economy and creating millions of new jobs, but Europe's extended stagnation remained a major stumbling block.
"Currency movements look to have drawn little focus at this weekend's G20 meeting," Todd Elmer, currency strategist at CitiFX in Singapore, wrote in a note to clients.
"This will likely be viewed as JPY-negative since it runs counter to building speculation that authorities, both foreign and domestic, are becoming more concerned with recent depreciation," Elmer said.
Japanese officials have stopped short of actively talking down the dollar's gains versus the yen, though they have voiced concerns about wide currency swings.
Finance minister Taro Aso and economy minister Akira Amari have suggested this month that a sharp decline in the yen would be unwelcome, preferring instead more gradual moves.
The dollar dipped 0.2 percent to 108.87 yen after hitting a six-year high of 109.46 on Friday.
The dollar rallied 1.6 percent against its Japanese counterpart last week, drawing encouragement from the Federal Reserve's higher projections of future interest rates.
While some market participants saw the dollar advancing to the 110 yen threshold soon, others cautioned that hot money accounts were ready to take profits on the dollar and its fall could be fast and hard following recent sharp gains.
"The dollar looks on course to reach 110 yen this week backed by U.S. economic fundamentals. Still, a sizeable slide in equities and any verbal warnings by U.S. officials against the depreciating yen could be triggers for speculators to sell the dollar, which could slip rapidly," said Junichi Ishikawa, market strategist at IG Securities in Tokyo.
For now, however, the dollar was also on the front foot against the euro.
With the Scottish referendum out of the way, the focus was seen returning to diverging monetary policies between the United States and Europe.
The euro stood nearly flat at $1.2850 after touching a 14-month trough of $1.2826.
The common currency has taken a spill on expectations the European Central Bank will continue to keep policy easy, and perhaps take further steps to shore up the European economy, in stark contrast to the Fed's hawkish rate projections.
In focus this week was the string of Fed officials due to speak and whether they would reinforce the central bank's hawkish rate outlook.
The market also eyed this week's run of U.S. data and their potential impact on U.S. Treasury yields, and by extension the dollar. For a starter U.S. existing home sales will be released later in the session.
Sterling lacked momentum after briefly jumping against the dollar on Friday on relief after Scotland rejected independence.
The pound fetched $1.6343 after momentarily rising above $1.65 on Friday.
Major political risks - ranging from the fallout of the Scottish referendum to next May's general election - still lie ahead for the pound and other UK assets, analysts said.
The Australian dollar also continued to struggle against the U.S. dollar on the Fed's policy guidance.
The Aussie was at $0.8928, with a break below $0.8920 taking it to a fresh six-month low against the dollar.
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