Dollar adds to gains vs euro, index near 7-month high

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The dollar rose sharply on Monday, as markets were unshaken by the weekend attacks in Paris, and investors continue to expect an interest rate hike from the Federal Reserve.

Early worries over Friday night's attacks in Paris subsided in morning trading as European equities erased early losses, and as U.S. stocks rose as well, as an expected fear-driven move to safe assets failed to materialize.

"In the context of what happened Friday, many people didn't expect the market to have such a muted reaction on the equities side of things," said Axel Merk, president and portfolio manager at Merk Hard Currency Fund in Palo Alto, California.

Can the euro/dollar slip further?
Can the euro/dollar slip further?

With the Paris attacks happening ahead of the weekend, markets had time to absorb the details of the violence without a knee-jerk reaction. That having happened, investors Monday came in and focused on the fundamentals of the dollar against other major currencies, Merk said, while adding he thought the dollar's rally was overdone.

After rebounding in early trading, the euro fell to near 6-1/2-month lows, down nearly 1 percent versus the dollar at $1.0678.

The dollar index, which measures the greenback against a basket of major currencies, edged up 0.45 percent to 99.460, passing a seven-month high it hit following the Nov. 6 release of a surprisingly robust U.S. jobs report.

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European Central Bank President Mario Draghi has been viewed by traders as signalling the ECB will move forward with further monetary easing next month in the euro zone, possibly cutting interest rates deeper into negative territory and buying more assets under its quantitative easing program.

A recent Reuters poll of more than 80 leading economists found a 70 percent chance the U.S. central bank would raise its short-term lending rate at its final meeting of the year on Dec. 15-16. In October, 55 percent had seen a December rate rise.

The dollar also rose against the Japanese yen, adding 0.5 percent on Monday to 123.23 yen per dollar, drawing strength from data showing Japan's economy slipped more than expected in the July-September period, the second consecutive quarter of economic contraction.

So far in November, the dollar has gained around 2 percent against the yen.