The dollar lost ground against most of its major peers on Monday, as growing expectations of an orderly Brexit bolstered the pound, euro and broader global investor sentiment.
A Sunday Times report that an all-UK customs deal will be written into the agreement governing Britain's withdrawal from the EU cheered investors who sent the pound to $1.3062 on Monday, the highest since Oct. 22.
The dollar index, a gauge of its value versus six major peers, traded marginally lower at 96.45 due to the gains in the euro and pound, which together make up around 70 percent of the index.
However, analysts think dollar strength will return as investors shift focus back to expectations for tighter U.S. monetary policy following stronger-than-expected economic data late last week. Analysts see the Federal Reserve on track to raise interest rates in December, followed by another two hikes by mid-2019.
Data released on Friday showed that U.S. jobs growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years.
"The jobs data has reaffirmed the dollar's strength due to the rates differential factor going forward. The risk is that the markets may be caught surprised by a more hawkish Fed," said Rodrigo Catril, senior currency strategist at NAB.
U.S. 10-year Treasury yields traded at 3.2 percent on Monday, having risen on Friday on the back of the jobs report.
That is expected to help the dollar firm against the safe haven Japanese yen, which traded flat at 113.18 on Monday. The dollar weakened by 0.66 percent versus the yen in the month of October as news flow around trade tensions, geopolitical risks and a global economic slowdown gave the Japanese currency a flight-to-safety bid.
"The dollar/yen will follow the U.S. 10 year yields higher. We don't see much downside as of now," added Catril.
Despite Brexit relief supporting risk appetite in currency markets, the UK's Telegraph newspaper reported that significant hurdles still remain for the negotiation process.
The pound retraced its intra-day high in early thin Asian trade, but was up 0.3 percent for the day. It has lost 3.7 percent versus the greenback year to date.
The positive sentiment around a smooth Brexit also gave the euro a small bid in early Asian trade. The single currency gained 0.11 percent and changed hands at $1.1396.
The offshore yuan traded stronger versus the dollar at 6.8948. The yuan gained in the last two trading sessions versus the greenback in offshore trading, supported by rising hopes that trade tension between China and the United States will ease.
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