The US dollar weakened against a basket of major currencies on Monday, though it remained near last weeks highs, as renewed Middle East tensions pushed global bond yields higher, while continued weakness in the Japanese yen kept traders alert for possible intervention by Japanese authorities.

The euro rose 0.1% to $1.1635, while the British pound gained 0.2% to $1.3351.

The dollar index which measures the US currency against a basket of six major currencies edged slightly lower to 99.12 points, after recording its strongest weekly performance in three months last week.

Barclays analysts wrote in a note: Risk and bond market conditions appear to be deteriorating, while the environment is becoming increasingly supportive for an extension of the dollars rally this week.

They added that signs the Strait of Hormuz could remain closed for longer are creating additional upward pressure, noting that the dollar tends to rise between 0.5% and 1% for every 10% increase in oil prices.

Oil prices climbed on Monday, with Brent crude rising more than 1% to trade above $110 per barrel, after a nuclear energy facility in the UAE came under attack and efforts to end the US-Israeli war against Iran stalled.

Risk appetite was also hurt by a worsening global bond selloff, as higher energy prices fueled inflation concerns and strengthened expectations for further interest rate hikes by major central banks.

The yield on the US 10-year Treasury note climbed to 4.6310%, while the two-year Treasury yield reached 4.1020%, with both hovering near their highest levels since February 2025.

Michael Pfister, FX strategist at Commerzbank, said shifting interest rate expectations and the subsequent rise in bond yields were the key drivers behind the dollars relative resilience.

He added:

Although market expectations toward the Federal Reserve shifted toward a more hawkish stance early on, investors had initially been reluctant to price in rate hikes. That changed last week, as Fed expectations experienced the biggest shift among G10 currencies.

Minutes from the Federal Reserves latest meeting and US PMI data due this week are expected to help clarify how concerned policymakers are about persistent inflation and whether economic activity momentum remains intact, according to Christopher Wong, FX strategist at OCBC Bank.

Markets are now pricing in more than a 50% probability that the Federal Reserve will raise interest rates by December, according to the CME FedWatch tool.

Investors are also monitoring the G7 finance ministers and central bank governors meeting in Paris on Monday and Tuesday, where discussions are expected to focus on ways to permanently end the war in Iran.

In Asia, the Japanese yen traded at 158.9 per dollar, near its weakest levels since April 29, keeping investors on alert for possible intervention by Japanese authorities.

Tokyo intervened several times in the currency market in late April and early May, helping the yen rebound roughly 3.5% in the following days, although the currency has already surrendered around 7% of those gains.

Meanwhile, Chinas offshore yuan weakened to 6.808 per dollar. Meetings between US President Donald Trump and Chinese President Xi Jinping last week produced no major breakthroughs, while data released on Monday showed Chinese economic growth lost momentum during April.