Dollar jumps as Yellen stokes bets on Dec. rate hike

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The dollar rose sharply on Wednesday as remarks from Federal Reserve Chair Janet Yellen intensified bets the central bank would raise interest rates next month if the overall economy improves further.

The dollar index added to earlier gains tied to surprisingly upbeat data on the U.S. services sector, propelling this measure of the greenback against a basket of currencies to 3-month highs. The dollar index was up 0.8 percent at 97.94.

The dollar climbed more than 1 percent against the euro, notching a 3-month high, while it jumped to a 2-month high against the . The euro was down 0.91 percent at 1.0859, while the yen was down 0.36 percent at 121.55.

Santelli: Key level in dollar
Santelli: Key level in dollar

"Yellen reinforced the notion that a December rate hike is very much in play," said Sebastien Galy, currency strategist at Deutsche Bank in New York.

Read More Janet Yellen: December rate hike a 'live possibility'

Interest rates futures implied traders see a 58 percent chance of a December rate increase in the wake of Yellen's remarks, up from 52 percent on Tuesday, according to CME Group's FedWatch program. This was the strongest expectations of a December rate move in about a month.

"If the incoming information supports that expectation then our statement indicates that December would be a live possibility," Yellen said at a congressional hearing on financial regulation.

Prior to Yellen's testimony, the dollar was already higher on encouraging domestic data in particular from a private report that showed a surprise improvement in the vast U.S. services sector.

Read More Fed maneuver will spur dollar rally: Currency trader

"Most of the initial rise in the dollar was behind the ISM services data which came in very strong. The U.S. economy is doing better than some had expected," Galy said.

Other areas of the economy also showed some improvement. ADP said U.S. private employers added 182,000 jobs in October, while the government reported the U.S. trade deficit narrowed sharply in September to its lowest in seven months.

"The private sector continues to add jobs at a healthy pace, and I think it's likely strong enough that if this pace of job growth continues, it will be enough to justify a rate hike in December," said Omer Eisner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Wednesday's jobs figures from the ADP National Employment report come ahead of the U.S. Labor Department's key non-farm payrolls report due on Friday, which includes both public- and private-sector employment.

The ADP report beat expectations from Reuters analysts, whose consensus forecast was for 180,000 new jobs.