Dollar rises as U.S. data, Yellen comments seem to back rate hike

By Dion Rabouin

NEW YORK (Reuters) - The dollar hit a three-month high against a basket of currencies on Wednesday after comments from Federal Reserve Chair Janet Yellen and better-than-expected U.S. data intensified bets that the U.S. central bank would raise interest rates next month.

Yellen said the U.S. economy was performing well and could justify an interest rate hike in December. During her comments, the dollar hit its highest level against the euro since late July and set a two-month high against the Japanese yen.

The Fed is "expecting the economy will continue to grow at a pace to return inflation to our target over the medium term," Yellen said. "If the incoming information supports that expectation ... December would be a live possibility" for a rate increase.

The dollar climbed about 1 percent against the euro to $1.0850. Against the yen , the greenback added 0.44 percent to 121.56 yen.

The dollar also rose more than 1 percent against multiple currencies, including the Canadian dollar , New Zealand dollar , Swedish krona , Danish krone , Russian rouble and Turkish lira .

The dollar index <.DXY> added to earlier gains tied to surprisingly upbeat data on the U.S. services sector, propelling this measure of the greenback against a basket of currencies to three-month highs. The index was up 0.91 percent at 98.044.

"I believe the market has come to the conclusion that the Fed is more likely to hike than not, and other banks are more likely to ease than not," said Lane Newman, ING Capital Markets' director of foreign exchange, "so you put those together and you come to the conclusion of a stronger dollar."

Data on jobs and trade also helped whet dollar bulls' appetites. ADP said U.S. private employers added 182,000 jobs in October, beating the consensus forecast of 180,000 from economists in a Reuters poll, while the government reported the U.S. trade deficit narrowed sharply in September to a seven-month low.

Interest rates futures implied traders saw a 58 percent chance of a December rate increase after Yellen's remarks, up from 52 percent on Tuesday, according to CME Group's FedWatch program. This was the strongest expectation of a December rate move in about a month.

Wednesday's figures from the ADP National Employment report precede the U.S. Labor Department's key non-farm payrolls report due on Friday, which includes both public- and private-sector jobs.

(Editing by Lisa Von Ahn)

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