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Rising US Retail Sales Push Dollar Higher

Kiyoshi Ota | Bloomberg | Getty Images

The dollar gained for a third straight session against the yen and euro on Monday as data showing an unexpected rise in U.S. retail sales assuaged fears of an economic slowdown in the world's largest economy.

The dollar, which pierced the 100 yen mark last week, continued to add to gains, hitting its highest level against the yen since October 2008 after Group of Seven finance officials over the weekend held back from directly criticizing Japan's monetary policy.

(Read More: G-7 Tackles Bank Reform, Gives Japan Green Light)

The dollar's outperformance can largely be attributed to central bank policy, with aggressive monetary easing in Japan and concerns about the risk of negative deposit rates in the euro zone contrasting with expectations the U.S. Federal Reserve will scale back its asset-buying program later this year.

The dollar gained after U.S. retail sales unexpectedly rose in April as households bought automobiles, building materials and a range of other goods, pointing to underlying strength in the economy.

(Read More: Lew Says Japan Must Respect Rules on Yen)

U.S. Treasury bond yields, which move inversely to price, rose after the data, further fueled broad dollar strength.

"We will not say that the consumer is back, but we will say the impact of payrolls taxes and other fiscal follies created by Washington politicians is hurting the economy less than analysts had cared to previously factor in," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. In New York.

The greenback's trajectory this week could be influenced by a bevy of Federal Reserve speakers, who will provide opportunities for updates on the Fed's exit and the paring back of its asset-purchase plan.

An article in the Wall Street Journal over the weekend suggested the Fed was working on a plan to taper its bond buying, currently at $85 billion a month, but gave no indication on the timing.

The dollar last traded at 101.84 yen, up 0.2 percent on the day, having earlier reached a peak of 102.14 on Reuters' trading platform, its highest since October 2008, as investors saw the outcome of the G-7 meeting as a signal to sell the Japanese currency.

"Whether the dollar rises quickly to 104 or 105 yen will depend on U.S. data," said Jane Foley, senior currency strategist at Rabobank.

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"We know there is fiscal consolidation in the U.S. and the possibility we will get some disappointing data. This could act as a restraint on dollar/yen."

Traders said investors took profit on dollar gains above 102 yen, and it may struggle in the short term before a reported options barrier at 102.50 yen. But most expect more yen falls, with many seeing a drop toward 105.

"It is a one-way bet and every pullback (in dollar/yen) will be met by buying interest," said Niels Christensen, currency strategist at Nordea in Copenhagen, adding the yen could fall to 105-110 per dollar in the next six months.

Euro, Aussie Fall

The euro was last down 0.1 percent at $1.2974, pressured after European Central Bank policymaker Ignazio Visco said the central bank may opt for negative deposit rates.

In a Reuters poll conducted after Visco's comments, 22 of 25 euro money market traders said they did not expect the ECB to cut the rate below zero—in line with findings of a wider poll of economists taken last week.

Against the yen, the euro was up 0.1 percent at 132.21 yen, off an earlier three-year high of 132.39.

Broad dollar gains, coupled with expectations of more interest rate cuts in Australia and concerns about slowing growth in China, pushed the Australian dollar to an 11-month low.

(Read More: Soros Rumor Underpins Turning Tide Against Aussie)

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