The US central bank will "have work to do" if policymakers don't get the confidence they need that inflation is heading down to 2 percent, Federal Reserve Chairman Kevin Warsh said on Friday, in his clearest indication yet that further tightening may be needed to curb price pressure.

The comments fueled bets on a September rate hike. Markets raised the implied probability of a move next month to 57 percent, while yields on interest-rate-sensitive two-year US Treasury notes rose to a more than one-month high of 4.33 percent.

"Warsh's defense of the inflation target has reduced a major drag on the US dollar and shifted the focus back to economic fundamentals," said OCBC's FX strategist Sim Moh Siong, adding that it helped rebuild the Fed's credibility and eased concerns about currency debasement.

Investors are now turning their focus to incoming US data, particularly Friday's nonfarm payrolls report and next week's consumer inflation figures, both of which could shape expectations ahead of the September Fed meeting.

The euro edged up 0.1 percent to $1.1591, while sterling was little changed at $1.3539. Both currencies remained on track for their second monthly gains.

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The dollar index, which measures the US currency against six major peers, ticked down slightly to 99.6 after jumping 0.6 percent on Friday to its strongest level since Aug. 17.

Even so, the index was still on track for a second consecutive monthly decline, as US Treasury bond-buyback plans earlier in the month revived debasement trades.

Dollar demand was also supported by higher oil prices on Monday. Brent oil rose nearly 2 percent after US forces struck Iran's Larak Island on Sunday, a US official said, which marks the first known American strikes on Iran since late July.

Yen weakness, G20 meeting in focus

Focus will turn to a US-hosted meeting of G20 finance ministers and central bank governors on Monday and Tuesday. Markets will watch for signs of coordinated efforts to sever ties with Iran, as well as measures aimed at easing concerns over rising US debt and bond yields.

A persistently weak yen is also in focus, with the dollar's renewed strength adding to pressure on the Japanese currency after it surrendered much of the gains made following July's intervention.

The yen was slightly weaker at 160.01 per dollar, after sliding beyond the 160-per-dollar level on Friday, a level widely viewed as increasing the risk of official intervention and putting the spotlight back on whether Tokyo and Washington may step in again to support the currency.

US Treasury Secretary Scott Bessent said on Sunday that recent yen moves had been "pretty well contained" and that he expected Bank of Japan Governor Kazuo Ueda to "do the right thing" on monetary policy.

"Historically, interventions have only held when fundamentals moved in the same direction," said Carlos Casanova, UBP's senior economist for Asia.

"The yen remains under pressure from a still-wide rate gap, negative real rates, and the Bank of Japan's cautious pace."

Elsewhere, the New Zealand dollar was little changed at $0.5916, and the Australian dollar edged up 0.1 percent to $0.7163.

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