TOKYO - The dollar traded near a 2 1/2-week high to major peers on Monday as quickening inflation in the United States boosted the case for earlier Federal Reserve interest rate hikes.
It approached a 1 1/2-week top to the yen after the safe-haven Japanese currency weakened as a strong showing for the ruling party in weekend elections reduced political uncertainty.
The dollar index, which measures the greenback against six rivals, was little changed at 94.166, hovering close to Friday's peak of 94.302, a level not seen since Oct. 13.
The U.S. currency bought 114.175 yen, gaining 0.13 percent from the end of last week. Above 114.41 would be the strongest since Oct. 20, the day it hit a multi-year high of 114.695.
New Japanese Prime Minister Fumio Kishida's ruling Liberal Democratic Party defied expectations and held its strong majority in Sunday's parliamentary election, solidifying his position in a fractious party and allowing him to ramp up stimulus.
"The reduction in political uncertainty is playing out with slight yen weakness this morning," said Shinichiro Kadota, senior FX strategist at Barclays in Tokyo.
"The bigger driver of dollar-yen direction going ahead remains the Fed."
Monetary policy in the United States and elsewhere is in sharp focus this week, with the Federal Open Market Committee widely expected to announce a tapering of stimulus on Tuesday.
A 4.4 percent surge in the government's index of core personal consumption expenditures - the Fed's preferred inflation measure - solidified market expectations for a rates lift-off around the middle of next year.
Following the data, futures on the fed funds rate, which track short-term rate expectations, priced in a 90 percent chance of quarter-point tightening by June 2022, factoring in another rate increase by December.
The Reserve Bank of Australia also decides policy on Tuesday, with markets challenging the central bank's contention that rates won't rise until 2024.
The Aussie dollar slipped 0.14 percent to $0.7509, continuing its retreat from a nearly four-month high $0.75555 reached last week.
The Bank of England announces its policy decision on Thursday, with markets weighing whether the monetary authority will raise rates at the meeting.
Sterling weakened slightly to $1.36775, and earlier dipped to $1.3663 for the first time since mid-October.
Meanwhile, the euro was about flat at $1.15575, staying close to Friday's low of $1.1535, the weakest since Oct. 13.
(Reporting by Kevin Buckland; editing by Richard Pullin)