[TOKYO] The US dollar held steady on Monday, its recent rally running out of steam on the back of sagging US yields as investors wound back expectations that the Federal Reserve will launch a series of quick rate hikes.

The US dollar index against a basket of six major currencies was little changed at 92.520.

The index hit a 4-1/2-month high of 93.416 last Wednesday, as a rise in US Treasury yields highlighted the wide interest rate gap between the United States and other countries.

However, it drifted lower after soft April US consumer price data curbed the prospect of aggressive rate hikes.

The euro was 0.05 per cent higher at US$1.1948, having recovered last week from US$1.1823, its weakest since Dec 22.

Still, the common currency was expected to face political headwinds, limiting its bounce against the US currency.

"The euro is likely to draw continued support from the dollar's temporary downturn. But uncertainty over Italian politics and resulting weakness in the Italian bond market will cap the euro," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

Italy's anti-establishment 5-Star Movement and the far-right League spent the weekend locked in talks to forge a common policy programme. The parties were adversaries as recently as March but look likely to form Italy's next government.

Italian government bond prices fell and their yields rose sharply last week due to uncertainty about the country's political future.

The US dollar was effectively flat at 109.330 yen, its two attempts to break convincingly above the 110.00 threshold earlier this month having failed.

The Australian dollar was 0.1 per cent higher at US$0.7553 after rallying back from an 11-month low of US$0.7413 plumbed on Wednesday.

The New Zealand dollar's bounce was more modest. The kiwi was at US$0.6968 after sliding to a five-month low of US$0.6903 on Thursday in the wake of the Reserve Bank of New Zealand's dovish-sounding stance.

Reuters