US dollar gains against yen as traders see Dec Fed rate hike

[NEW YORK] The US dollar hovered near a nine-month high against a basket of major currencies and touched a one-week high against the yen on Monday on growing expectations of a Federal Reserve interest rate increase in December.

Recent positive economic data and comments from central bank officials have bolstered those expectations, with traders on Monday seeing a roughly 74 per cent chance that the Fed will raise rates in December, according to data from CME Group's FedWatch programme.

The Fed could appropriately raise rates three times between now and the end of 2017, Chicago Fed President Charles Evans said on Monday, so long as inflation expectations and the labour market continue to improve.

Mr Evans' comments built on remarks by San Francisco Fed President John Williams on Friday and New York Fed President William Dudley on Oct 19, both of whom hinted at a nearing rate increase.

Preliminary Markit data on Monday showing US manufacturing reached a one-year high this month reassured traders after a reading last week showed US home resales in September beat expectations.

The US dollar index, which measures the greenback against a basket of six major currencies, was up slightly at 98.775, just off a roughly nine-month high of 98.846 touched earlier on Monday.

In morning US trading, the US dollar rose to 104.32 yen, the highest in a week.

"Even the most dovish comments seem to include a December rate hike, so that's almost a near reality coming up," said Alfonso Esparza, senior currency strategist at Oanda in Toronto.

The euro was down 0.08 per cent against the US dollar at US$1.0873, near a more than seven-month low of US$1.0857 touched Friday.

The US dollar slipped against emerging market currencies. Analysts attributed that to greater appetite for risk and recent polling that shows Hilary Clinton leading Donald Trump two weeks before the Nov 8 US presidential election.

Mr Trump's stance on protectionist trade measures has been seen as a risk to emerging market currencies.

"To the extent that the election matters for the dollar, that's an indication of markets pricing in less Trump risk," said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets in New York.

The US dollar was last down slightly at 18.56 Mexican pesos and had fallen more than one per cent against the Brazilian real to a two-and-a-half month low of 3.1148 reais.

REUTERS