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Dollar hits 3-week high vs yen as rate rise signals get louder

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The U.S. dollar broadly extended gains on Monday and reached a three-week high against the yen after Federal Reserve officials' hawkish comments on Friday raised expectations that an interest rate hike is more likely in the coming months.

At an annual gathering for global central bankers in Jackson Hole, Wyoming, Fed Chair Janet Yellen said the case for an interest rate hike had strengthened in recent months as the labor market and economy improved. She gave no hints on the timing of an increase.

Fed Vice Chair Stanley Fischer said later on Friday that Yellen's speech was consistent with expectations for possible rate increases this year, sending the dollar higher and stocks and Treasury prices tumbling.

Euro lower after Yellen

"It's follow-through from Friday," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

The next major data will be Friday's non-farm payrolls report for August, which will be preceded by the ADP National Employment Report on Wednesday.

"We've had a big dollar move," Chandler added. " ... The market is approaching some levels where we could see some profit-taking ahead of Wednesday's ADP and Friday's jobs data."

Fischer said Friday's report would probably be a major factor in deciding whether to raise rates in the near term.

Against a basket of major currencies, the dollar index hit its highest in two weeks at 95.805, and was last down 0.03 percent at 95.54. The euro last fell 0.03 percent to $1.1189.

Earlier, the dollar rose 0.45 percent to 102.32 yen, its highest since August 9. The dollar was last up 0.09 percent to 101.93 .

Why this FX analyst is long-dollar

A strong jobs report on Friday could accelerate dollar gains.

"If the payrolls figure is strong, the dollar could move toward a test of the 105 level against the yen," said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities in Tokyo.

Employers probably added 180,000 jobs in July, according to the median estimate of 89 economists polled by Reuters.

The contrast between a more hawkish Fed as central banks in Japan and Europe maintain highly stimulative policies is expected to help the dollar in the medium term.

"This policy divergence should be supportive for the dollar," said Stewart Richardson, chief investment officer at RMG Wealth Management.

The dollar gained slightly after data on Monday showed that U.S. consumer spending increased in July for the fourth straight month amid strong demand for automobiles, although inflation remained subdued.