Dollar hits new 7-month high, soars vs euro

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The dollar touched fresh seven-month highs on Tuesday, bolstered by widening rate differentials in favor of U.S. Treasuries on expectations the Federal Reserve will raise interest rates next month.

The dollar index hit its highest since April, rising about 0.5 percent to 99.50, outpacing Friday's post-jobs report highs. It last traded up 0.34 percent at 99.24.

Friday saw the dollar up sharply after the government's U.S. non-farm payroll report showed a rise of 271,000 last month, far exceeding the 180,000 new jobs for October economists polled by Reuters had predicted.

Dollar a problem, but market not overvalued: Pro
Dollar a problem, but market not overvalued: Pro

Other major currencies pared some of those gains Monday, but on Tuesday the dollar regained its momentum. The greenback rose 0.38 percent against the euro, which last traded at 1.0713 after hitting an April 24 high. The euro zone currency has lost nearly 3 percent against the dollar in November's first 10 days.

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"I think this is central bank policy divergence taking effect on dollar-euro," said Sireen Haraji, currency strategist at Mizuho Corporate Bank in New York.

"Last week, we saw very hawkish comments from Yellen, Dudley and Fischer in addition to the very strong payrolls report, so I think right now markets are pricing in the first rate hike to come in December."

At the same time, she added that there was increasing market expectation that the ECB will do something at their December meeting.

The euro further came under pressure on Monday after four governing council members said a consensus is forming at the European Central Bank to take one of its benchmark interest rates deeper into negative territory in December.

Talk of a cut to the ECB's -0.2 percent deposit rate dragged euro zone bond yields lower on Tuesday.

In sharp contrast to the ECB, the Fed is considered very likely to tighten U.S. monetary policy in December for the first time in nearly a decade, following Friday's robust jobs data.

Even Eric Rosengren, the dovish president of the Boston Fed, pointed to December as an appropriate time to begin raising rates, bolstering a view that the ground was being prepared for a lift off next month.

"If we see continued gradual improvement in the U.S. economy, it will be appropriate to gradually increase short-term rates," he told the Newport County Chamber of Commerce, noting it was "possible" to move next month.

The dollar rose slightly against the yen, buying 123.22 .