The U.S. dollar traded higher against its major counterparts in early European deals on Monday, as investors believe that its recent sell-off was overdone.

Speculation for monetary policy tightening outside the U.S., which would narrow the divergence between the Federal Reserve and other central banks, has reduced the dollar's yield advantage this year.

The currency clawed back some of its losses, buoyed by strong economic data released on Friday.

The University of Michigan's consumer sentiment index showed a significant improvement in February, while housing starts and building permits rose more than forecast in January.

The Federal Reserve will release minutes of the January policy meeting on Wednesday, which would help gauge the pace of potential interest rate hikes this year.

Fed policymakers scheduled to speak include New York Fed President William Dudley and Atlanta Fed President Raphael Bostic on Thursday, as well as Cleveland Fed President Loretta Mester and San Francisco Fed John Williams on Friday.

The greenback advanced to a 5-day high of 1.3993 against the pound, compared to 1.4033 hit late New York Friday. If the greenback extends rise, 1.35 is seen as its next resistance level.

The greenback that closed Friday's trading at 1.2409 against the euro climbed to a 5-day high of 1.2388. The next possible resistance for the greenback is seen around the 1.22 mark.

Data from the European Central Bank showed that the euro area current account surplus decreased at the end of the year.

The current account surplus fell to a 6-month low of EUR 29.9 billion in December from EUR 35 billion in November.

The greenback firmed to a 4-day high of 106.66 against the yen and held steady thereafter. At last week's close, the pair was valued at 106.27. On the upside, 110.00 is likely seen as the next resistance for the greenback.

Data from the Ministry of Finance showed that Japan logged a merchandise trade deficit of 943.417 billion yen in January.

That exceeded forecasts for a shortfall of 1,003.6 billion yen following the 358.7 billion yen deficit in December.

The greenback strengthened to a 5-day high of 0.9300 against the franc from last week's closing value of 0.9271. The greenback is seen finding resistance around the 0.95 level.

The greenback bounced off to 1.2565 against the loonie and 0.7375 against the kiwi, from its early lows of 1.2528 and 0.7410, respectively. Further uptrend for the greenback is likely to see it finding resistance around 1.28 against the loonie and 1.72 against the kiwi.

The U.S. market remain shut for Presidents Day.

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