US dollar near highest since March as Fed rate-increase wagers rise

[TORONTO] The US dollar reached a seven-month high as traders ratcheted up bets on a Federal Reserve interest-rate increase by year-end.

The greenback appreciated against about half of its major counterparts, leaving it on track for an October gain.

The probability of a Fed interest-rate increase by December rose to 73 per cent, the highest since June, futures data compiled by Bloomberg show.

The US dollar's recent strength suggests that currency traders have yet to fully price in the prospect of higher US rates in coming months, signaling that the greenback may have room to extend gains that began in August amid evidence of faster economic growth and accelerating inflation.

Chicago Fed President Charles Evans said Monday that if the economy continues to grow in line with his forecast, it may be appropriate to raise rates three times by the end of 2017.

"It's a fairly straightforward Fed-expectations move," said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London.

The greenback was little changed at US$1.0889 per euro and 104.22 yen as of about 5.00 pm in New York.

It touched the strongest since March against Europe's shared currency, and the highest since July versus Japan's currency.

The Bloomberg Dollar Spot Index has gained about two per cent this month, paring its 2016 loss to around 2.1 per cent.

The US currency fell from the day's strongest levels as a report showed a measure of consumer confidence decreased to a three-month low in October.

The dollar also faded against the pound after Bank of England Governor Mark Carney said there were limits to officials' willingness to look beyond an overshoot of their inflation target.

"We still lack a clear theme to drive the US dollar higher from here," said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank.

"The hawkish Carney comments and a snapback in European currencies probably fueled the dollar drawdown."

The market-implied chance of a Fed hike by policy makers' mid-December meeting has risen from 59 per cent at the end of last month.

The best time for a rate boost is in December, San Francisco Fed President John Williams was quoted as saying by the Wall Street Journal on Tuesday.

BLOOMBERG