The dollar index climbed on Monday, building on four straight weeks of gains after the U.S. government temporarily avoided a shutdown and economic data continues to support the view the U.S. Federal Reserve will keep rates higher for a longer period of time.

Economic data showed U.S. manufacturing took a step further towards recovery in September as production picked up and employment rebounded, according to a survey on Monday that also showed prices paid for inputs by factories falling considerably.

Over the weekend, the U.S. Congress passed a stopgap funding bill late on Saturday with overwhelming Democratic support after Republican House Speaker Kevin McCarthy backed down from an earlier demand by his party's hardliners for a partisan bill, easing concerns the release of government data would be delayed and complicated the view of the Fed's interest rate path.

U.S. Treasury yields were higher after the deal, in a week of data highlighted by Friday's payrolls report.

"Right now it's all about the bond market and right now it seems that Wall Street is having this major reset where it is understanding that higher for longer is going to change how investors position their portfolios and that's providing some underlying strength here for the dollar right now," said Edward Moya, senior market analyst at Oanda in New York.

"The belief is you are still seeing the U.S. growth story is much better than abroad and that is probably going to keep that interest rate differential widely in its favor. We also need to see what happens with Japan and they are in a position where they need a policy change before their currency devalues even further."

The dollar index rose 0.52% to 106.80, against the yen the dollar was traded at 149.81 yen, up 0.31% after climbing to 149.90, its strongest level in nearly a year.

Fed Governor Michelle Bowman said she remains willing to support another increase in the central bank's policy interest rate at a future meeting if incoming data shows progress on inflation is stalling or proceeding too slowly.

Investors have been closely watching for signs of intervention in the Japanese currency by the Bank of Japan (BOJ).

The yen has come under pressure against the dollar as the BOJ remains a dovish outlier among global central banks, especially since the Fed began its aggressive rate-hike cycle in March 2022.

A summary of opinions at the Bank of Japan's September meeting showed more policymakers discussed the prospects of an eventual exit from ultra-loose policy, while the central bank also said it would conduct additional bond buying operations, as it seeks to slow a rise in yields after the benchmark reached its highest in a decade.

Japan's Finance Minister Shunichi Suzuki said authorities were closely watching FX moves with a "strong sense of urgency" as it neared the 150 mark, but declined to comment on whether intervention was a possibility at this point.

In the broader currency market, sterling was last 0.4% lower at $1.2158, having slid nearly 4% against the dollar in the third quarter.

 

The euro stood at $1.0503, while sterling traded at $1.2135 was down 0.57%, reflecting the divergence between the U.S. and European economies.

Manufacturing activity in the euro area and Britain remained in a deep downturn in September, final data showed.