"Given that positioning is so stretched in one direction, the market's started to ... reverse," said Mark McCormick, North American head of FX strategy at TD Securities in Toronto. "We're seeing a bit of an unwind of the strong yen and Swiss franc position."
McCormick added that because of the dollar's deterioration, it would take fresh negative headlines about the U.S. and North Korea for the dollar to continue to weaken.
"There's a very low bar for positive surprises to feed back into the U.S. dollar," he said.
The dollar index, which tracks the greenback against six major currencies, was last up 0.39 percent.
The index fell to its lowest since May 2016 earlier this month. Data from Commodity Futures Trading Commission released on Friday showed speculators' net short bets on the dollar grew last week to their largest position since January 2013.
Last week, the dollar fell to an eight-week low against the Japanese yen. On Monday, it rose 0.45 percent to 109.64 yen.
Against the Swiss franc the dollar was up 1.07 percent, on pace for its largest one-day percentage gain in nearly three weeks.
Comments from New York Federal Reserve Bank President William Dudley that it was not unreasonable to think the central bank would begin trimming its $4.2 trillion balance sheet in September and add another rate hike this year, provided economic data holds up, pushed the dollar index to its highest level of the day.
The dollar also was boosted by gains in U.S. stock markets, said Brian Daingerfield, macro strategist at NatWest Markets in Stamford, Connecticut.
The benchmark S&P 500 stock index rose 1.05 percent, bouncing back from sizeable losses last week.
World stocks also rose, showing signs of relief after fears of a nuclear stand-off drove them to the biggest weekly losses of 2017 last week.
Investors are looking to a report on U.S. retail sales due Tuesday for their next clue on the trajectory of U.S. inflation.