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The dollar gained on the yen as the gap between U.S. and Japanese yields widened in the greenback's favor, but the greenback may be vulnerable to renewed selling, especially if forthcoming U.S. jobs data disappoints.
Some upward pressure on the dollar and U.S. yields was sparked by the Philadelphia Federal Reserve president, who on Friday said the central bank would have to tighten policy soon to avoid inflation.
But analysts said the market overreacted to the comments from the Fed's Charles Plosser, a traditional policy hawk, and noted that recent U.S. economic data, particularly regarding the housing market, has shown signs of weakness.
While the Commerce Department on Monday said consumer spending rose more than expected in February, its eighth consecutive monthly gain, higher gas and food prices are expected to slow spending growth in the first quarter.
U.S. employment data is due on Friday, and economists polled by Reuters expect 190,000 job gain in March, steady with the 192,000 jobs added the prior month.
The market expects the European Central Bank to lift interest rates on April 7 after ECB President Jean-Claude Trichet said Monday inflation rates are above the central bank's price stability target.
But the euro gains may falter after an ECB rate hike, partly on the view that the euro zone economy is too fragile to withstand a series of interest rate hikes.