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 U.S. two-year Treasury yields rose to their highest in 4-1/2 years
and spreads over their German counterparts widened to their maximum
since late 2006, boosting the allure of the dollar to investors.
The dollar index, which tracks the greenback against six major
peers, was up 0.15 percent at 98.135, after having gained 0.8
percent on Wednesday.
The dollar's gains came as chances for a December rate hike rose
over 50 percent after Federal Reserve Chair Janet Yellen laid out
what appears the base case at the U.S. central bank that the country
is ready for higher interest rates.
Driving home the point, William Dudley, the influential president of
the New York Fed and a permanent voter on policy, later said the he
would "completely agree" with Yellen that December is a "live
possibility" for raising rates.
"There is a strong momentum for the dollar as rate hike chances for
December have improved," said Yujiro Goto, currency strategist at
Nomura. "A lot depends on how the U.S. jobs data pans out, but data
of late has been encouraging."
Economists expect the U.S. nonfarm payrolls report on Friday to show
that U.S. employers have added 180,000 jobs last month. Goto added
that a number above 165,000-170,00 along with a tick up in wages
would prompt the Fed to start hiking rates in December.
The greenback broke out of its recent 120.00-121.60 range against
the yen, to reach a two-month high of 121.85 yen.
With the European Central Bank promising to go the other way -
providing more policy stimulus - the euro fell to its lowest in over
three months at $1.0834.
Some analysts warned dollar bulls not to get too carried away in the
lead-up to the U.S. employment data, leading to some caution.
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Sterling was steady against the dollar <GBP=D4> at $1.5390, but rose
against the euro to a 11-week high.
Traders are likely to tread cautiously before the BoE releases its
quarterly Inflation Report as well as an interest rate decision and
the minutes from its latest Monetary Policy Committee meeting.
The BoE is expected to keep rates at historic lows, with most
expecting only MPC hawk Ian McCafferty to continue to vote for an
immediate hike. But some reckon two of the nine MPC members may join
him.
"Today may see the BoE sharpen up its hawkishness too with a
potential 7-2 vote and the Inflation Report and related minutes
underlining the need to normalize interest rates over the course of
next year," Morgan Stanley said in a note, adding these factors
could send the currency higher.
(Editing by Tom Heneghan)
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