The Bloomberg Dollar Index recovered most of its early losses on Monday. Pressure from the US suspension of strikes against Iran and falling oil prices was offset by the market's continued pricing in of a possible interest rate hike by the Federal Reserve later this week.

Reports that the Swiss National Bank will maintain zero interest rates until the end of 2027 caused the Swiss franc to weaken. The Bloomberg Dollar Index fell less than 0.1%, after declining as much as 0.3% during the session.

CIBC Capital Markets strategist Noah Buffam noted that North American traders are betting on a more hawkish Fed stance and hedging against the risk of a surprise rate hike, which helped the dollar recover. "The Fed should keep rates unchanged on Wednesday, but Chairman Kevin Warsh's opposition to forward guidance could prompt the market to hold dollars in anticipation of a hawkish surprise," analysts at ING wrote.

"We still see the risk of a rate hike as very low, and the dollar could weaken after the meeting," wrote Scotiabank's Shaun Osborne and Eric Theoret. "Chairman Warsh's assessment of the Fed's operations is still ongoing, and a rate hike that could be perceived as directly linked to the conflict with Iran would be a poor start to his tenure." The swap market continues to show about a one-in-three chance of a 25-basis-point rate hike by the Fed on Wednesday.

USD/CHF recovered its losses, rising 0.1% to 0.8191, once again hitting a more than one-year high. Sources familiar with the matter said the Swiss National Bank is expected to keep rates unchanged, a judgment based on the absence of new shocks and considering the recent weakness of the franc against the euro. EUR/CHF rose 0.1% to 0.9312.

EUR/USD was little changed at 1.1370. Germany's July IFO business confidence index rose more than economists had expected. USD/JPY fell 0.1% to 163.73. Japanese Prime Minister Shigeru Ishiba's approval rating has dropped sharply, as his government focuses on pushing a series of controversial bills without taking effective measures to alleviate inflationary pressures, sparking public discontent. USD/CAD rose 0.2% to 1.4124.