Dollar Rises to 4-Month High as Signs Hint at Fed Move

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The dollar rose to a four-month high after a report showed service providers expanded in July at the strongest pace in a decade, reinforcing speculation the U.S. economy is on track for faster growth.

The greenback rose against most of its major peers as traders saw an increased likelihood that the Federal Reserve raising interest rates next month, which would boost the appeal of dollar-denominated assets. The government’s July employment report due Aug. 7 is forecast to show strong jobs growth, even as a private report Wednesday trailed forecasts.

“The coast is pretty clear for further dollar gains,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said by phone.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.2 percent to 1,217.04 as of 5 p.m. New York time, reaching the highest level since March 13. The U.S. currency fell 0.2 percent to $1.0905 per euro and gained 0.4 percent to 124.86 yen after rising to the highest level in almost two months.

The Institute for Supply Management’s non-manufacturing index jumped by 4.3 points to 60.3, the best reading since August 2005 and well above the most optimistic projection in a Bloomberg survey of economists, the group’s report showed.

Fed Watch

Traders are pricing in a 50 percent probability that the Fed will raise interest rates in September, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. That compares with 42 percent a week earlier.

“The bulls’ hopes have been validated,” Matt Weller, an analyst at Gain Capital Holdings Inc.’s unit in Grand Rapids, Michigan, said by phone. “The market’s been looking for an excuse to drive the dollar higher and we had some setbacks.”

Companies in the U.S. added 185,000 workers to payrolls in July, figures from the ADP Research Institute showed. The median forecast economists surveyed by Bloomberg called for a 215,000 advance.

The Labor Department report is projected to show employers, including government agencies, took on 225,000 workers last month, while the jobless rate held at a seven-year low of 5.3 percent.

“Since March, we’ve had the dollar in a consolidation phase -- I think we are nearing the end of that,” Mazen Issa, senior foreign-exchange strategist at Toronto Dominion Bank, said by phone from New York.

The U.S. currency has gained 8.6 percent this year versus nine other developed-nation peers, Bloomberg Correlation-Weighted Indexes show. The best performer has been the Swiss franc, which is up 10.5 percent.

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