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US dollar hits three-month peak on rate-hike view

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The dollar reached its highest in 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 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 0.16 percent higher at 98.01 in early afternoon U.S. trading after touching 98.088 earlier, which was the highest since April 23.

The greenback was flat against the euro at $1.0829 in the wake of a debt deal that will keep Greece in the euro zone for now.

The dollar reached a 4-1/2-week peak versus the yen in European trading before scaling back to 124.29 yen, up 0.17 percent from Friday.

Benchmark U.S. yields were up over 2 basis points at 2.37 percent.

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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 0.95 percent at $0.6573 after it hit a six-year low of $0.6498 last week.

Key reportedly said the kiwi's 25 percent slide in the past year was more than expected and that the economy was growing at a good pace.

His comments came ahead of a meeting this week of the Reserve Bank of New Zealand, which 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 4-percent slump in gold on Monday, also in part a result of the dollar's gains, added to pressure on currencies such as the Canadian and Australian dollars and the Norwegian crown, which tend to be driven by commodity prices.