The dollar held firm against the euro on Monday, with traders taking the view the U.S. Federal Reserve will likely lift its benchmark rate above 5% and keep it there to squeeze inflation after data showed the labour market remains strong.
An earthquake in central Turkey and northwest Syria and a strong U.S. dollar added pressure on emerging currencies sending Turkey's lira to a record low of 18.85 against the dollar.
The Fed on Wednesday raised rates by 25 basis points and said it had turned a corner in the fight against inflation, leading investors to price in a slowdown in the pace of rate hikes going forward.
But an eye-popping U.S. nonfarm payrolls number on Friday along with a services industry rebound in January sent the dollar to a mid-January high, with investors pricing in the Fed's policy rate to peak at 5.05% in June.
"The worry of course is that the much better-than-expected data is bad news if the Fed sees this as bolstering its case of two more hikes and keeping rates elevated for longer," said Tapas Strickland, head of market economics at National Australia Bank.
Also boosting the safe-haven dollar was escalating tension between the United States and China after a U.S. military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina on Saturday.
The euro slipped 0.2% to touch a nearly three-week lows of $1.0769. The single currency had surged to a 10-month high on Thursday after the European Central Bank lifted its deposit rate to 2.5% and promised a 50 basis point rate hike in March.
On Monday, Austrian central bank chief Robert Holzmann said the risk of the ECB not raising interest rates high enough was still bigger than that of lifting them too much as inflation in the euro area remained far too high.
