Dollar climbs to seven-month peak on rate hike bets; pound plunges
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Euro, Hong Kong dollar, U.S. dollar, Japanese yen, British pound and Chinese 100-yuan banknotes are seen in a picture illustration shot January 21, 2016. REUTERS/Jason Lee/Illustration/File Photo
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By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The dollar surged to a seven-month high against a major currency basket on Tuesday, as investors increased bets the Federal Reserve would raise interest rates in December following a round of generally solid U.S. economic data over the last few weeks.
Sterling continued its downward trek following a "flash crash" last Friday, with investors concerned about the impact of a "hard exit" by Britain from the European Union. Over the past week, the British pound has lost more than 4 percent of its value against the dollar.
In the United States, investors are looking to Wednesday's release of the latest Fed monetary policy meeting's minutes for confirmation of the market's December rate hike view. The rate futures market has attached a roughly 70 percent probability the Fed will lift rates at the December meeting
That pushed benchmark U.S. 10-year yields
The euro also had a major technical breakdown against the strengthening dollar on Tuesday, dashing a nearly two-month consolidation pattern, analysts said.
"Expectations for a December (U.S.) rate hike are running high," which have supported the dollar, said James Chen, head of research at Forex.com in Bedminster, New Jersey.
"A series of U.S. economic data releases at the end of this week, including retail sales, the producer price index and consumer sentiment, could help shape expectations and the dollar movement going forward," Chen said.
Analysts also said the dollar has benefited as Democratic presidential nominee Hillary Clinton widened her lead in opinion polls over Republican candidate Donald Trump.
Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, said Clinton was seen as the status quo candidate and her victory would likely create fewer policy uncertainties than Trump's.
In late trading the dollar index <.DXY>, which measures the greenback against six major currencies, rose 0.8 percent to 97.650 after hitting its highest since March.
The euro fell to a more than two-month low against the dollar, and was last down 0.8 percent at $1.1054
Against the yen, the dollar slipped 0.3 percent to 103.38
The British pound, which has weakened for four straight sessions, fell 1.8 percent to $1.2128
But Michael Sneyd, macro quantitative strategist at BNP Paribas in London, said he believed that based on the bank's forex models, sterling's current rate against the dollar already reflects the worst-case scenario for the British currency.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Alistair Bell and Richard Chang)
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