Rate-hike view lifts U.S. dollar to three-month high

By Richard Leong

NEW YORK (Reuters) - The dollar reached its highest in nearly three months against a basket of currencies on Monday on a rise in U.S. bond yields as traders built bets the Federal Reserve would raise interest rates later this year.

A plummet in gold prices to five-year lows under $1,100 an ounce also increased the appeal of the greenback, the world's reserve currency.

"Higher Treasuries yields and lower gold prices are consistent with U.S. dollar strength as investors anticipate U.S. rates normalization later this year," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.

Last week, U.S. Fed Chair Janet Yellen testified before Congress, reiterating U.S. interest rates will go up later this year if the economy continues to expand.

St. Louis Fed chief James Bullard told Fox Business network on Monday there was a higher than 50 percent chance the U.S. central bank will raise rates in September.

The dollar index was up 0.2 percent at 98.035 in late trading after touching 98.088 earlier, which was the highest since April 23.

The greenback was steady against the euro at $1.08280 in the wake of a debt deal that will keep Greece in the euro zone for now.

The dollar reached 124.390 yen, a 4-1/2-week peak in European trading before scaling back to 124.265 yen, up 0.1 percent from Friday.

Benchmark U.S. yields were up over 2 basis points at 2.372 percent.

Currency trading was light due to a national holiday in Japan and the summer holiday season, analysts said.

Meanwhile, the New Zealand dollar rebounded from a six-year low versus the dollar after comments by Prime Minister John Key gave investors pause for thought on the scale of its slide.

The kiwi was up 0.9 percent at $0.6569 after it hit a six-year low of $0.6498 last week.

Analysts cited Key's comments to reporters after his weekly post-cabinet press conference that kiwi's 25 percent slide in the past year was faster than expected.

His comments came ahead of Reserve Bank of New Zealand's meeting on Wednesday where it is expected to cut interest rates further to support growth. Traders said the comments flew against bets of a larger half-point reduction in rates.

A slump in gold, as much as 4 percent at one point on Monday, lent support to the dollar but stoked pressure on the Canadian and Australian dollars and the Norwegian crown, which tend to be driven by commodity prices.

(Additional reporting by Patrick Graham in London, Masayuki Kitano in Singapore; Editing by Chizu Nomiyama and Cynthia Osterman)

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