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The U.S. dollar started the week higher as fears over inflation resurfaced after a surprise announcement by major oil producers to cut production further, with traders wagering the Federal Reserve may need to increase interest rates at its next meeting.

The announcement from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, comes after data on Friday showed U.S. consumer spending rose moderately in February after surging the prior month, with inflation showing some signs of cooling even as it remained elevated.

"While receding broader contagion risks, positive developments in China and expectations that the Fed is nearing the end of the tightening cycle should keep sentiments broadly supported, the recent oil price gain due to the surprise production cut is a fresh risk to inflation," said Christopher Wong, a currency strategist at OCBC in Singapore.

"Fresh inflation risks do imply the inflation fight is not over."

The euro was down 0.25% to $1.0812, hovering near a one-week low, while the Japanese yen weakened 0.04% to 132.86 per dollar. Sterling was at $1.2305, down 0.22% on the day, having touched a one-week low of $1.22825 earlier in the session.

The dollar index, which measures the U.S. currency against six peers, was last at 102.77, aiming to break through 103 for the first time in a week.

The OPEC+ cuts caused immediate oil price increases of more than 6% on Monday. [O/R]

The cuts were announced even before a virtual meeting of the OPEC+ ministerial panel, which included representatives from Saudi Arabia and Russia, that was expected to stick to cuts of 2 million barrels per day (bpd) already in place until the end of 2023.

Instead, the oil producers on Sunday announced further output cuts of around 1.16 million bpd.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 2.7 basis points at 4.089%. The yield on 10-year Treasury notes was up 2.1 basis points to 3.511%.

Markets are now pricing in the probability of the Fed hiking rates by a quarter point in May to 61%, from 48% on Friday. But, by the end of the year, expectations are priced in for cuts of 40 basis points.

The risk-sensitive Australian dollar fell 0.21% to $0.667. The kiwi fell 0.54% to $0.622.

In cryptocurrencies, bitcoin last fell 1.04% to $28,097.00. Ethereum last fell 1.55% to $1,789.48.