The dollar climbed to a five-month peak on Monday as news of a truce between the United States and China on trade tariffs prompted investors to pare back their short positions on the greenback.
Investors have been short the dollar since July last year, but since mid-February, the dollar index has rallied nearly 7 percent. The dollar has been mainly bolstered by generally solid U.S. economic data that has backed the Federal Reserve's tightening stance this year.
The prospect of a resolution to the U.S.-China trade tension has further added to the dollar's shine. The two world's largest economies have agreed to drop their tariff threats for now.
U.S. Treasury Secretary Steven Mnuchin and President Donald Trump's top economic adviser, Larry Kudlow, said on Sunday the agreement reached by Chinese and American negotiators on Saturday set up a framework for addressing trade imbalances in the future.
"In the absence of major economic releases, the headline on the easing of trade tensions with China has been positive for the dollar, although the dollar in general has been doing a little bit better," said Sireen Harajli, FX strategist at Mizuho Bank in New York.
"Economic data in the U.S. has been performing fairly well, in contrast to other parts where things have not been so great," she added.
Harajli cited concerns about Japan's economy, which contracted in the first quarter of 2018, and the euro zone, with Germany, the biggest economy in the region, revising down its first-quarter growth.
In late trading, the dollar index fell 0.03 percent to 93.60 after earlier hitting a five-month high above 94.
This week, the dollar's fate rests on the Federal Reserve, with several Fed officials speaking this week and the minutes of the U.S. central bank's last monetary policy meeting due out on Wednesday.
Investors will focus on the Fed's inflation outlook. Higher inflation could mean faster interest rate hikes and a stronger dollar.
In other currency pairs, the dollar rose to a four-month high against the at 111.39 and was last at 111.01, up 0.24 percent. The yen has been pressured Treasury yields, analysts said.
The euro, meanwhile, was up 0.04 percent against the dollar at $1.178, after earlier falling to its lowest level since around mid-November.
Europe's single currency has been affected by concerns about political uncertainty in Italy. This week will bring about a further test for stubborn euro bulls with the release of May flash PMI data on Wednesday, with markets waiting to see whether the first-quarter slowdown in Europe has spilled over to subsequent months.