Dollar Set for Biggest Monthly Gain Since May on Fed Prospects

The dollar is on course for its biggest monthly gain against major peers since May after reaching a seven-month high as speculation increased that U.S. interest rates will rise this year.

A gauge of the greenback has advanced 2 percent this month and the U.S. currency outperformed all its 10 developed-market counterparts as markets priced in the Federal Reserve’s rate increase in December. Gross domestic product data due on Friday and a nonfarm payrolls report next week will offer further clues on the state of the economy. The Fed’s next policy decision is on Nov. 2. The dollar retreated from the highest level since March on Tuesday after a report showed a measure of consumer confidence decreased to a three-month low in October.

“The consumer confidence was bad, but doesn’t have much of an impact on policy, so the price action may be just positioning ahead of GDP and the Fed,” said Yasuhiro Kaizaki, vice president for global markets at Sumitomo Mitsui Trust Bank Ltd. in New York. “U.S. yields have been rising to support the dollar, and there is no change in the robust dollar trend.”

The Bloomberg Dollar Spot Index, which measures the U.S. currency’s performance against a basket of 10 major counterparts, was little changed as of 9:11 a.m. in Tokyo from Tuesday when it slipped 0.1 percent after reaching the highest level since March 16. 

The dollar bought 104.10 yen from 104.22 Tuesday when it touched an almost three-month high. The greenback was little changed at $1.0891 per euro after rising to the strongest since March 10.

The probability of a Fed interest-rate increase by December rose to 73 percent, the highest since June, futures data compiled by Bloomberg show. The odds of a move at next week’s meeting are just 17 percent.

“Markets are almost pricing in a December rate hike, so unless there is very weak data, this sentiment is unlikely to change,” Kaizaki said. Even a weak economic number will only send the dollar to around 103 against the yen, he said.

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