The dollar hit its highest level in nearly a month versus the euro on Monday after last week's upbeat jobs data suggested the U.S. economy may not be in dire need of further monetary stimulus from the Federal Reserve.
The euro struggled after facing what traders described as a buy-the-rumour-sell-the-fact fall on Greece's bond swap deal with private creditors which will clear the way for a new bailout.
The single currency slipped 0.3% to $1.3087, having dipped to as low as $1.3079 at one point on trading platform EBS, the euro's lowest level since February 16.
Possible support for the euro lies near $1.3055, the 50% retracement of its January to February rally.
"There's a risk of euro/dollar sustaining a move below $1.31," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
U.S. jobs data on Friday showed employers added more than 200,000 workers to their payrolls for a third straight month in February, a sign the economy was strengthening.
With the euro in retreat, the dollar hit its highest level in nearly seven weeks against a basket of major currencies. The dollar index touched a high of 80.132 at one point, its highest level since January 25.
A Reuters poll conducted after the release of the employment data on Friday showed that recent signs of improvement in the U.S. labor market were spurring economists at major Wall Street firms to rethink how aggressive the Fed needs to be in applying further monetary stimulus.
Economists at most primary dealers – the large financial institutions that do business directly with the Fed – still believe the central bank will undertake another large stimulus programme at some point in 2012. However, they now expect the scale of this intended economic support to be smaller than they thought a month ago.
The dollar dipped 0.2% against the yen to 82.32 yen, coming under pressure due to profit-taking and dollar-selling by Japanese exporters, traders said.
The greenback had climbed to 82.65 yen on Friday on trading platform EBS, its highest level since late April 2011, as U.S. Treasury yields rose on the back of the upbeat jobs data, making the dollar more attractive against the low-yielding Japanese currency.
A focal point for dollar/yen this week will be policy decisions by the Bank of Japan and the U.S. Federal Reserve, both of which are due on Tuesday.
The BOJ's monetary policy has been in the spotlight after its surprise monetary easing in February, when it expanded its asset-buying scheme by 10 trillion yen and set a 1% inflation goal, triggering a broad slide in the yen.
The BOJ is expected to refrain from further policy easing at its two-day meeting that starts on Monday, while stressing its readiness to act again in coming months if needed and extending a cheap loan line supporting growth industries.
But traders said some market players were speculating that the BOJ may conduct more monetary easing this week and spark a further sell-off in the yen.
Such speculation was helping push dollar/yen implied volatilities higher, said a trader for a Japanese bank in Tokyo.
The bid rate on dollar/yen one-month implied volatility rose to as high as 11.0% at one point on Monday, its highest level since early November, right after the BOJ's massive yen-selling intervention on October 31.
