The US dollar has strengthened to the highest level against safe haven currency Japanese yen early on Tuesday as a result of an uptick in US Treasury yields, and is also trading strong against other major rivals. At the time of writing, the US dollar index DXY is trading around 93.11.

So far this month, the US dollar has registered significant gains and is all set to post the best monthly performance seen in more than four years. The greenback has also turned bullish as the end of the Japanese fiscal year approaches, driving up demand for the reserve currency among companies in order to square their books.

The dollar index is holding strong just above the 93 level especially because of a weakness in the Euro, which has dropped to the lowest level in nearly five months due to the third wave of the pandemic. Several parts of Europe have brought back lockdown measures and restrictions to combat the spread of the virus even as vaccine distribution remains slow compared to other regions like the US and the UK.

Later this week, the US dollar can experience considerable volatility on the release of the NFP report which will provide insight into the state of the employment sector. With recent economic data releases and statements from Fed officials pointing to signs of rapid economic recovery across the US, a strong NFP report will likely support further bullishness in the greenback towards the end of the week.