In the second half of the week, much of the focus will be on what ECB President Draghi says at the central banking symposium in Jackson Hole about monetary policy. The annual event is a traditional spot for central bankers to set the agenda for the final stretch of the year.
Though bets on a Fed policy change have been reduced in recent days given the general USA political turmoil, expectations of a Fed hike may rise if Chair Janet Yellen emphasizes on Friday that the risks to inflation goals and financial stability require careful monitoring.
Trading activity may remain somewhat subdued, however, with another quiet day on the US economic front keeping some traders on the sidelines. Investors are awaiting word from ECB President Mario Draghi, who will speak at a central bankers' meeting in the United States this week, on how he proposes to engineer a gradual end to the era of mass bond buying and negative interest rates. Still, the index is up 13.5 percent since the election.
UBS research suggests more than 60 percent of EM carry trades - borrowings in cheap developed economy currencies invested in higher-yielding emerging currencies - are denominated in dollars, Narain said.
During a speech in June at Sintra, in Portugal, Mr Draghi delivered a speech that investors interpreted as a hint at this - sending the euro to its highest level against the dollar for more than a year. His remarks will focus on the theme of the conference, an ECB spokesman said, responding to speculation over whether the Italian might choose to send a policy signal on the central bank's bond-buying program.
The greenback that closed Monday's deals at 0.9619 against the franc rose to 0.9657.
In late NY trading, the euro rose to 1.1816 USA dollars from 1.1758 US dollars, and the British pound climbed to 1.2899 US dollars from 1.2874 US dollars.
Selling pressure remained relatively subdued, however, with a lack of major US economic data keeping some traders on the sidelines. Persistent doubts about the prospects for another Fed interest rate hike this year, at a time of subdued USA inflation, have also weighed on the dollar.
"After testing support at 108.50 three times over the past month, dollar/yen appears to have found a base at this level and the key question this week will be whether the dollar can stage any sort of counter trend rally ahead of the Jackson Hole symposium this week", he added.