The dollar stood tall against the yen around 108.29 JPY= after gaining nearly 1 percent on Monday and reaching a one-week high of 108.60. The yen soared to 1-1/2-year highs last week.
"Don't underestimate the power of short covering," Kathy Lien, managing director at BK Asset Management, said in a note to clients.
While the dollar is "still a sell on rallies" against the yen, Lien said the currency could soar to 110 yen quickly if the 20-day simple moving average at 108.83 were broken. "When a currency...squeezes higher quickly, causing investors to panic and abandon their positions, the rally could be sharp and aggressive particularly when positions are skewed so heavily in the opposite direction," she said.
The euro edged up slightly to $1.1386 EUR=.
Undermining the greenback, Wall Street's top banks have all but abandoned any expectation that the Fed will raise rates in June, and most now see the U.S. central bank's next hike coming in September, according to a Reuters survey conducted on Friday after a weaker-than-expected rise in U.S. payrolls.
Fed officials on Monday gave investors no incentive to alter their monetary policy expectations. Chicago Fed President Charles Evans said he favored the current 'wait and see' approach, while Minneapolis Fed President Neel Kashkari said the current policy stance was "about right."
The U.S. economy's fundamentals are solid and growth this year should pick up to around 2.5 percent, but the Federal Reserve's current 'wait and see' approach to monetary policy is appropriate, a Fed policymaker said on Monday.
Minneapolis Federal Reserve Bank President Neel Kashkari on Monday signaled his support for the cautious and patient approach to rate hikes laid out by Fed Chair Janet Yellen, saying the current stance of monetary policy is "about right."
While a rate hike in June is "possible," Kashkari sounded happy to keep rates low for now in order to continue bringing workers who have not worked in months or years back into the labor force.
The most recent indications from Fed officials point to two more interest rate hikes this year. Financial markets, however, are barely pricing in one more, and that is not expected until December, after the U.S. presidential election.
Crude settled at the lowest level in two weeks as shifting winds moved wildfires away from oil-sands facilities in Alberta, reducing concern that production cuts would make a substantial dent in U.S. oil stockpiles.
Euro zone finance ministers offered on Monday to grant Greece debt relief by giving it longer grace periods and bond maturities from 2018 if the country delivers by then on all reforms agreed under its latest bailout.
Futures erased intraday gains and declined 2.7% in New York. Wildfires in Canada have led to cuts equivalent to about 40% of oil-sands production, based on IHS Energy estimates. The impact of a reduction in output may be muted due to U.S. crude stockpiles holding at the highest level since 1929.Once fires in Alberta are under control, the majority of oil sands mining projects can be back to normal production levels in about one week, Morgan Stanley said.
West Texas Intermediate for June delivery dropped $1.22 to settle at $43.44 a barrel on the New York Mercantile Exchange. Total volume traded was 32% above the 100-day average.
Brent for July settlement slipped $1.74 to end the session at $43.63 a barrel on the London-based ICE Futures Europe exchange. WTI for July was at a 40-cent premium to Brent. The last time the premium widened to more than 30 cents was in March.
Reference: Reuters, CNBC, Investors
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