Dollar firm as traders keep powder dry ahead of payrolls data

By Dion Rabouin

NEW YORK (Reuters) - The dollar rose against most major currencies on Thursday, hitting a more than two-month high versus the yen, as comments from Federal Reserve officials reinforced a growing view that the U.S. central bank would hike interest rates next month.

Investors are now looking to Friday's October U.S. nonfarm payrolls report for guidance as to what the Fed will eventually do at its next monetary policy meeting in mid-December.

Remarks from Fed Chair Janet Yellen and New York Fed President William Dudley on Wednesday boosted the dollar, with the effect carrying over to Thursday's session and keeping the greenback ahead of both the euro and the yen.

Shaking earlier losses after unexpectedly weak data on U.S. jobless claims, the dollar rose 0.1 percent against the yen to 121.71 yen and was up 0.2 percent against the euro to $1.0886.

The dollar index <.DXY> was up 0.1 percent at 98.004 in late trading after touching a three-month high.

The chances for a December rate hike are now perceived as higher than 50 percent after Yellen laid out what appeared to be the base case that the economy is ready for higher rates. Dudley later Wednesday said he would "completely agree" that December is a "live possibility" for raising rates.

Traders were still digesting those remarks and "keeping the powder dry" in anticipation of Friday's payrolls numbers, said Karl Schamotta, director of FX strategy and structured products at Cambridge Global Payments in Toronto.

And while Yellen's comments made an impact, it was Dudley's remarks, Schamotta said, that really hammered home the message.

"The fact that Yellen is not the lone hawk on the case," he said, "has added momentum to the dollar's trade-weighted gain over the last 24 hours."

Thursday saw remarks from Dudley, Philadelphia Fed President Patrick Harker, Chicago Fed President Charles Evans and Fed Vice Chair Stanley Fischer, but none addressed policy directly.

The dollar made major gains on Thursday against sterling , adding 1.15 percent to $1.5209 per pound after the Bank of England kept rates unchanged at 0.5 percent and gave no indication it was in any hurry to raise them.

Investors quickly moved expectations of a BoE rate increase from early 2016 back to the end of next year, with a rate hike now not fully priced in until well into 2017.

(Additional reporting by Anirban Nag in London and Gertrude Chavez-Dreyfuss in New York; Editing by James Dalgleish)

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