New york: The dollar strengthened today as traders positioned for a Federal Reserve rate hike and oil prices rebounded from sharp losses, while the yen hovered near its weakest level in four decades. US Treasury yields remained elevated after Monday's surge, with the two-year yield - highly sensitive to interest rate expectations - trading near a 16-month high as markets priced in a potential rate increase later this year.

According to Oman News Agency, the dollar index, tracking the US currency against a basket including the yen and the euro, edged up to 101.01, close to its one-year high of 101.13 reached late last week. Oil's rebound also supported the dollar after a sharp drop in the previous session on progress in US-Iran talks, as investors awaited clearer signs of a breakthrough toward resuming crude flows.

The euro traded at $1.1423, hovering near a three-month low after ECB President Christine Lagarde played down concerns over second-quarter inflation. Sterling traded at $1.3246, largely steady after Prime Minister Keir Starmer's resignation paved the way for an orderly transition. The risk-sensitive Australian and New Zealand dollars both fell about 0.1 percent, to $0.6991 and $0.5704 respectively.

The yen traded at 161.59 per dollar, after briefly touching a two-year low of 161.93 late on Monday, as the dollar continued its broad-based rally. A break above 161.96 would push the yen to its weakest level since 1986.