Dollar index faces profit taking after hitting 11 1/2-year

The dollar index halted its rally after rising to an 11 1/2-year high on Monday, as it faced some downside pressure from investors closing their long positions.

The green currency gained for a third straight week last week, underpinned by a report showing American employers added more than forecast jobs last month.

The nonfarm payrolls data released on Friday saw the generation of a 295,000 in February from 257,000 jobs in January, while analysts expected 240,000.  

The upbeat data raised speculations the Fed would raise interest rates earlier than envisaged, especially as Fed Chair Janet Yellen has linked the rise in borrowing cost to the progress in economic data, most notably the labor market figures.

The six-currency index advanced more than 2.5 percent last week, while added almost 1.15 percent the previous two weeks.

The greenback may continue its rally due to the divergence in monetary policy between the Federal Reserve and other major central banks.

The European Central Bank started its 1 trillion-euro bond-buying programme on Monday, which may put pressure on the shared currency that represents the highest percentage of the dollar index.