* Dollar index down from Friday’s 3-1/2 month peak
* Pullback in U.S. 10-year yield dents dollar’s momentum
* Dollar/yen on track for biggest monthly gain since 2016
* Fed policy meeting, U.S. jobs data coming up this week
By Masayuki Kitano
SINGAPORE, April 30 (Reuters) - The dollar held steady against a basket of currencies on Monday, having pulled back from a 3-1/2-month high set late last week, pressured by a decline in the benchmark U.S. 10-year Treasury yield.
The dollar’s index against a basket of six major currencies stood at 91.519, steady on the day but down from Friday’s high of 91.986, its strongest level since Jan. 11.
The dollar index had risen more than 1.3 percent last week for its biggest weekly gain in over two months, after the U.S. 10-year Treasury yield rose above the psychologically key 3.0 percent threshold to four-year highs.
The U.S. 10-year yield has since come off that peak and fell 3 basis points on Friday to 2.957 percent, down from a four-year high of 3.035 percent struck on Wednesday.
Earlier this year, the correlation between U.S. yields and the dollar had broken down as investors focused more on trade frictions and geopolitical issues.
Markets, however, have recently turned their attention to interest rate plays as concerns over the U.S.-China trade spat and tensions over North Korea’s nuclear programme eased, giving the greenback a leg up against its major peers.
Against the yen, the dollar held steady at 109.05 yen, down from Friday’s 2-1/2 month high of 109.54 yen. The dollar has risen nearly 2.6 percent against the yen in April, putting it on track for its best monthly performance since November 2016.
The dollar will probably consolidate against the yen in the near term, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
“The dollar has come a long way, and my sense is that it doesn’t have the strength to break above 110 yen for now,” Okagawa said, referring to the outlook for this week.
At the same time, with concerns over geopolitical risks easing, the dollar’s downside risks against the yen also appear limited, Okagawa said, adding that the greenback was unlikely to fall back to the 107-yen handle in the near term.
Events and data coming up this week include the U.S. Federal Reserve’s May 1-2 policy meeting, at which the central bank is widely expected to keep interest rates unchanged, as well as U.S. jobs data due on Friday.
“This week’s U.S. nonfarm payroll number will go a long way to cementing the dollar’s near-term trend,” Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, said in a note.
“On the FOMC front, it should be relatively uneventful as most non-press conference meeting are, but the policy statement should offer some insights,” Innes wrote, referring to the Fed’s policy meeting this week.
The euro held steady at $1.2130, having recovered from a 3-1/2-month low of $1.2055 set on Friday.
Sterling eased 0.1 percent to $1.3775, looking wobbly after shedding 0.9 percent on Friday for its biggest one-day drop in about two months.
The British pound had set a near two-month low of $1.3748 on Friday after Britain’s economy slowed far more than expected in the first quarter of 2018, slashing expectations the Bank of England will raise interest rates in May.
Reporting by Masayuki Kitano; Editing by Sam Holmes