• Greenback gauge surges as odds of 2015 Fed liftoff rise to 68%
  • U.S. data `very supportive' of dollar strength, Saxo Bank says

The dollar rally is back on.

A gauge of the greenback against its major peers rose to the highest in data going back almost 11 years Friday amid rising speculation the Federal Reserve will lift interest rates at its December meeting. It’s set to climb even further, according to Steven Englander, global head of Group-of-10 foreign-exchange strategy at Citigroup Inc. in New York. That’s because Friday’s U.S. employment report, which he described as a "blowout," has strengthened the case to boost U.S. borrowing costs this year.

The greenback has rallied since July 2014 on expectations that the Fed will lift rates, contrasting with global peers including the European Central Bank and Bank of Japan, which are carrying out unprecedented stimulus. In recent months, the U.S. currency’s gains have slowed as lackluster economic data cast doubt on the timing of Fed liftoff. Friday’s employment report helped to allay those concerns.

"We continue to expect the dollar to appreciate versus the euro and the yen, and we’re positioned accordingly," said Roger Bayston, a director at Franklin Templeton’s fixed-income group in San Mateo, California, which manages $155.8 billion.

The dollar gained 2.4 percent to $1.0741 per euro this week, after surging to the highest in more than six months on Friday, and rose 2.1 percent to 123.13 yen. The Bloomberg Dollar Spot Index strengthened 1.9 percent to 1,232.53.

U.S. payrolls rose by 271,000 last month, a Labor Department report showed Friday, the biggest gain this year and exceeding all estimates in a Bloomberg survey of economists. The jobless rate fell to a seven-year low of 5 percent, and average hourly earnings over the past 12 months climbed by the most since 2009.

‘Wildly Supportive’

"It is very supportive of further U.S. dollar strength," said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in London. The data are "wildly supportive of a December move" by the Fed.

There’s a 68 percent probability that the central bank will raise its benchmark rate at its December meeting, according to futures data compiled by Bloomberg. That’s up from 56 percent before the report’s release and a 35 percent probability of a December increase on Oct. 27, the day before the Fed concluded its last policy meeting. The calculation assumes the effective fed funds rate averages 0.375 percent after the first increase.

Traders have boosted bets on a December rate move since Fed officials added a direct reference to next month’s meeting in their latest policy statement.

Currency traders will be watching retail sales and producer-price data next week to gauge whether U.S. economic growth is broad-based enough for the Fed to justify rising rates.

"The rally has further to run, particularly against the euro and the yen," Brian Davidson, market economist at Capital Economics Ltd. in London, said in a note. He said Friday’s currency moves support the firm’s view that the euro will fall to $1.05 by the end of this year and to parity with the dollar by the end of 2016.

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