Global shares edged up in light trading on Monday, ahead of U.S. inflation data this week that could prove instrumental in setting expectations for the outlook for monetary policy.
The dollar came under pressure as a deadline for lawmakers to resolve a standoff over the U.S. government's borrowing limit drew ever closer.
Friday's robust U.S. payrolls report has prompted investors to dial back their expectations for the timing and size of the Federal Reserve's first rate cut. Wednesday's consumer price data is expected to show core inflation slowed moderately.
"With the Fed having hiked by 25 basis points last week and signalled a pause, this week’s inflation report is more about how long the Fed will keep rates at 5.25% before cutting," CityIndex analyst Matt Simpson said.
"A hot print would presumably be bullish for the U.S. dollar as traders push potential cuts further into the future."
Money markets show investors expect U.S. rates to have now peaked and could end this year below 4.40%. Against that backdrop, the dollar is close to its lowest in a year against a basket of major currencies.
The dollar index was last down 0.2% on the day at 101.11, mainly due to gains in the euro , which rose 0.3% to $1.1046.
Sterling , which has gained 4.5% against the dollar this year, was at $1.2641, at 10-month highs, ahead of a Bank of England policy meeting later this week.
"While it is premature to get too 'beared up' on the dollar until a clearer peak in U.S. rates is seen, the U.S. banking sector travails that have no easy/costless solutions, continue to make for a mildly bearish medium-term story," said Alan Ruskin, head of global FX strategy at Deutsche Bank.
"Certainly it imposes more growth constraints and a greater stagflationary bias than for major competing economies."
The dollar has fared better on the yen as the Bank of Japan remains the only central bank in the developed world to not have tightened policy. The dollar rose 0.1% against the yen to 134.95 yen .
