The dollar rose to its highest level in five days, just below a two-month peak on Wednesday as data on US private sector payrolls rose more than expected for February, increasing investor expectations of an increase to interest rates by the Federal Reserve later this month. US private employers added 298,000 jobs last month, well above the gain of 190,000 predicted by economists surveyed by Reuters. That pushed the dollar to its highest level since March 3 against a basket of currency rivals.
The euro also fell to a five-day low after the payrolls data and ahead of a meeting of the European Central Bank Thursday that market participants expect will see policy kept loose despite rising inflationary pressures. While the dollar rose after the data's release, the gains were minimal, given it has already rallied by around 2.5 percent against a basket of major currencies over the past five weeks.
"The market certainly got ahead of itself before the (Federal Open Market Committee meeting) next week," said Dean Popplewell, chief currency strategist at Oanda in Toronto. Investors have now priced in a chance of around 90 percent of a US interest rate hike this month, up from around a 30 percent chance early last week, according to CME Group's FedWatch tool. Hawkish comments from US Federal Reserve officials last week have investors betting that a rate hike next week is essentially a done deal. The dollar index was last up 0.2 percent at 102.03. The dollar rose 0.7 percent against the yen to 114.74 yen, its highest since March 3, hovering just below a nearly one-month high.