The US dollar index rose on Monday after New York state factory activity in April increased for the first time in five months, helping bolster expectations the US Fed will raise interest rates in May.

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Also bolstering the dollar was a report showing confidence among US single-family homebuilders improved for a fourth straight month in April.

The dollar index – a measure of the currency against six major peers – rose 0.413 per cent after the Empire State Manufacturing index shot to 10.8 from -24.6 in March, far higher than expectations of -18 in a Reuters poll of 35 economists.

The euro slid 0.66 per cent to $1.0926 after hitting a one-year high of $1.108 on Friday. Traders expect further interest rate hikes from the European Central Bank as the fears of last month's banking crisis have faded.

The yen weakened 0.45 per cent at 134.40 per dollar as the Bank of Japan stuck to its easy-money policies, helping the greenback rise to its highest level since March 15.

The Mexican peso lost 0.11 per cent versus the dollar to trade at 18.04, while the Canadian dollar fell 0.25 per cent versus the greenback to 1.34 per dollar.

The rupee depreciated 16 paise to close at 82.01 against the US currency on Monday as a strong American currency overseas and a negative trend in domestic equities weighed on investor sentiments.

Futures trading showed the probability of the Fed raising its lending rate to a range of 5.00-5.25 per cent when policymakers conclude a two-day meeting on May 3 rose to 88.7 per cent from 78 per cent on Friday, CME Group's FedWatch Tool showed.

The outlook of US interest rates relative to other countries monetary policies and economies can boost or erode the dollar's value.

With Reuters Inputs