U.S. inflation at 2 percent for first time in 6 years

MARKET-TO-MARKET: 10-year Treasury hits 3 percent, why this matters

MARKET-TO-MARKET: 10-year Treasury hits 3 percent, why this matters

However, few economists expect any mention of trade risks in the Fed's policy statement on Wednesday and see any tweaks as likely to be confined to upgrading the language on inflation to reflect that it is now effectively at target.

Policymakers are expected to leave borrowing costs unchanged at their two-day meeting concluding May 2, then raise rates in June for the second time this year.

"Inflation has continued to run below the [Federal Open Market Committee's] 2% objective but we expect it to move up in coming months" Fed Chairman Jerome Powell said in a speech April 6, when he predicted that "the 12-month change should move up notably this spring as last spring's soft readings drop out of the 12-month calculation". But a growing number of Fed officials and analysts say further hikes could be necessary to curb rising inflation.

Sterling had soared to a 22-month high near $1.4377 just two weeks ago on speculation that the Bank of England would hike interest rates soon.

Other data last week showed that while USA economic growth slowed to an annualized rate of 2.3 percent in the first quarter, wages and salaries shot up 0.9 percent during the same period.

The PCE index, excluding volatile food and energy components, increased by 1.9 percent on a 12-month basis through March, marking the biggest gain since February 2017.

Earlier this year, the correlation between US yields and the dollar had broken down as investors focused more on trade frictions and tense global politics. The dollar slipped against a basket of currencies after the data.

Overseas, investors will be watching North Korea, after the nation's leader met with the leader of South Korea on Friday.

The markets are also focused on Friday's April U.S. non-farm payrolls report, which could provide further signs of strength in the world's biggest economy.

Consumer spending on whole rose 0.4 percent in March after decreasing 0.2 percent in February.

Analysts are expecting strong US growth throughout 2018, spurred by increasing federal spending and a rush of economic activity spurred by the 2017 tax cuts.

First-quarter GDP grew at a 2.3% annualized rate, GDP data showed April 27, faster than the forecast for a reading of 2% but weaker than the 2.9% in the fourth quarter.

Spending rose 0.4 percent in March, following a flat February and a 0.2 percent increase in January.

Remains below the Fed's target of 2.0%

. The data was included in last Friday´s advance first-quarter gross domestic product report.

Meanwhile, personal incomes rose a moderate 0.3 percent in March, matching the February gain.

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