Dollar hits seven-month high after upbeat U.S. data, rise in yields

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar inched up to a seven-month high against a basket of currencies on Monday, retaining momentum from upbeat U.S. data last week that reinforced expectations of a December interest rate hike by the Federal Reserve.

A rise by U.S. yields to four-month highs also buoyed the greenback.

The dollar index was up 0.1 percent at 98.095 (DXY) after touching 98.158, its highest since March 10.

The U.S. currency lost a bit of steam against its Japanese peer, dipping 0.1 percent to 104.110 yen after rising to as high as 104.480 on Friday.

The euro was flat at $1.0970, hovering close to a near three-month low of $1.0964 plumbed earlier on Monday.

The dollar garnered support on Friday from strong U.S. retail sales and producer price numbers for September - the latest indication that the U.S. economy regained its momentum in the third quarter after a lackluster first half.

Speculators lifted favorable bets on the dollar for a third straight week, with net longs hitting their highest in more than eight months, according to Reuters calculations and data from the Commodity Futures Trading Commission (CFTC) released on Friday.

The CFTC data showed speculators cut yen net longs to 45,000 contracts from roughly 70,000 the prior week.

"For now, support for dollar/yen is likely to come from passive selling of the yen involving winding down of positions, rather than active, speculative selling," said Koji Fukaya, president of FPG Securities in Tokyo.

"A December Fed rate hike is mostly priced in by the market. The key to further dollar strength is how far U.S. long-term rates can climb."

Also lifting the dollar on Friday, the 10-year (US10YT=RR) and 30-year Treasury yields (US30YT=RR) reached four-month highs after Federal Reserve Chair Janet Yellen suggested the Fed may allow inflation to exceed its 2 percent target. [US/]

"The schedule this week isn't packed with strong U.S. data releases, and the market focus is likely to center around three events," said Shin Kadota, chief Japan FX strategist at Barclays (LON:BARC) in Tokyo.

"These would be Wednesday's China GDP data, the ECB policy meeting after recent talk of tapering and the last U.S. presidential debate, which would give the market a chance to confirm if Clinton has the lead over Trump."

The third and final U.S. presidential debate between Democrat Hillary Clinton and Republican Donald Trump takes place late on Wednesday (U.S. time) and the ECB holds its policy meeting on Thursday.

Clinton maintained a substantial projected advantage in the race to win the Electoral College and claim the U.S. presidency, according to the latest results from the Reuters/Ipsos States of the Nation project released on Saturday.

Elsewhere, the pound slipped 0.3 percent to $1.2156 . Sterling, dogged by prospects of a complex and potentially chaotic exit by Britain from the European Union, had lost nearly 2 percent last week.

The Australian dollar was down 0.4 percent at $0.7586 , trimming some of its gains made on Friday on the back of a bounce in commodity prices.