US dollar strengthens to 3-month high as Fed chief says December rate rise a 'live possibility'

A currency exchange clerk counts US dollar notes.
A currency exchange clerk counts US dollar notes.PHOTO: AFP

NEW YORK (Bloomberg) - The United States dollar rose to its highest level since July versus the euro after Federal Reserve Chair Janet Yellen said an interest-rate increase in December is a "live possibility" if economic data hold up.

The US currency climbed versus most of its major peers as Ms Yellen told Congress that the Fed's decision at its meeting next month will depend on an assessment of the outlook at the time, informed by economic data in the interim. Her comments followed a better-than-forecast private employment report on Wednesday (Nov 4).

"The dollar's certainly getting some interest," said Mr Matt Derr, a foreign-exchange strategist in New York at Credit Suisse Group AG. "We're at 50-50 for the December meeting in terms of what's being priced. You're right on the edge, that's the most volatile point so anything can swing it one way or another."

The greenback climbed 0.9 per cent to US$1.0866 per euro as of 5pm (6am Singapore time), touching US$1.0844, its strongest since July 21. The Bloomberg Dollar Spot Index, which tracks the US currency versus 10 of its peers, added 0.7 per cent to 1216.99. The currency gained 0.4 per cent to 121.57 yen.

Traders see a 58 per cent chance that the Fed will boost borrowing costs from near zero in December, up from 34 per cent before the central bank met last month. The calculations are based on the assumption the effective fed funds rate will average 0.375 per cent after lift-off, compared with the current range of zero to 0.25 per cent.

The Fed has been expecting that the economy will continue to grow at a pace sufficient to generate further improvements in the labour market and to push inflation up, Ms Yellen said in response to questions following testimony before the House Financial Services Committee.

"Moving in a timely fashion, if the data and the outlook justify such a move, is a prudent thing to do," she said.

Policymakers are scrutinising the US jobs market as they look to raise rates for the first time since 2006.

Wednesday's report from the ADP Research Institute showed companies added 182,000 jobs last month, slightly more than the 180,000 forecast by economists surveyed by Bloomberg. The median estimate for a Friday employment release from the Bureau of Labour Statistics also calls for a 182,000 increase in hires.

"The important thing is it didn't change our perception that the US labour markets are doing reasonably well," Mr Bipan Rai, director of foreign-exchange strategy at Canadian Imperial Bank of Commerce's CIBC World Markets unit, said by phone from Toronto about Wednesday's employment data.