Dollar Extends Gain Against Yen

The dollar gained against the yen, leaving it poised for the longest rally since March, as U.S. service companies expanded in September at the fastest rate in almost a year, leading traders to ramp up bets that the Federal Reserve will raise interest rates in coming months.

The greenback advanced for the seventh straight day against the yen as the sign of strength in the world’s biggest economy followed comments from Fed officials that revived speculation the central bank is getting closer to tightening policy. Fed Bank of Chicago President Charles Evans said Wednesday that one rate increase by year-end is likely if data continue to improve.

The dollar has pared its loss for 2016 to about 3 percent amid mounting wagers that the Fed will hike rates while other major central banks extend unprecedented stimulus. The U.S. central bank lifted its overnight target from near zero in the final quarter of 2015.

“Market expectations for a Fed move in December are well priced, so Fedspeak is constructive enough to maintain that,” said Mazen Issa, a senior foreign-exchange strategist at Toronto-Dominion Bank in New York. “So far, the data is also validating that view as well.”

The greenback gained 0.5 percent to 103.45 yen as of 11:14 a.m. in New York, reaching the strongest in about a month, and was little changed at $1.1209 per euro.

The Bloomberg Dollar Spot Index, which measures the currency against 10 major peers, touched the highest since Sept. 21.

Higher Probability

The market-implied probability of a hike by December rose to 65 percent, from 51 percent at the start of last week, futures data compiled by Bloomberg show. Key jobs numbers at the end of this week are forecast to show a pickup in hiring in the world’s largest economy.

“The dollar remains supported by expectations of a Fed rate hike,” said Viraj Patel, a London-based foreign-exchange strategist at ING Groep NV. “Fed talk has been relentlessly hawkish in the past couple of weeks, so much so it’s been hard for markets to ignore. Markets are now looking for the data to validate this.”

Evans, who’s not a voting member on the Federal Open Market Committee until next year, said the central bank may raise the benchmark rate as soon as next month. Fed Bank of Cleveland President Loretta Mester said this week that the case for an increase is “compelling.”

The Institute for Supply Management’s non-manufacturing index jumped to 57.1, the highest since October 2015 and exceeding all forecasts in a Bloomberg survey. The August reading of 51.4 was the lowest in more than six years.

“This is very good news that would be a big deal if there was a truly live FOMC within two weeks,” said Greg Anderson, global head of foreign-exchange strategy in New York at Bank of Montreal. “As it stands, it’s not that big of a deal with the next live FOMC still 70 days out.”

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