Dollar hits 11-week high on bets of December Fed rate hike

The dollar hit an 11-week high on Tuesday as investors upped their bets on the Federal Reserve raising US interest rates before the end of the year, and as doubts grew over Donald Trump`s ability to win the US presidency.

In Sweden by contrast, market players are betting the central bank may have to ease policy further - a view that was strengthened by a weak inflation print on Tuesday, sending the Swedish crown to a 6-1/2-year low against the euro.

As U.S. Treasury yields rallied to their highest levels since early June, the dollar index - which measures the greenback against six major peers - jumped 0.6 per cent to 97.475, its highest since late July.

Traders have priced in a 70 per cent chance the Fed will hike rates at its Dec. 13-14 meeting, up from 66 per cent on Friday, according to CME Group`s FedWatch tool.

Some analysts said widening odds of Trump becoming president were also helping to drive up the dollar, after the most senior Republican in Congress, Paul Ryan, distanced himself from him. A Trump victory is seen as likely to trigger political uncertainty, which markets tend to shy away from.

"Trump is widely deemed to be dollar-negative, while a Clinton victory is regarded to be positive for the dollar. In the absence of a shock victory for Trump, the Federal Reserve will most likely raise interest rates in December, thanks to improving data in the US," said Forex.com analyst Fawad Razaqzada.

But not all were so sure about Trump`s impact on the dollar. "I think politics is difficult for the dollar these days - I don`t know if the market has quite made up its mind about what to make of a possible Trump victory," said DZ Bank currency strategist Sonja Marten, from Frankfurt.

"I think (the dollar strength) is more to do with the Fed... At this point it seems like they`re more willing to take a slightly more hawkish stance."

Investors are looking to Wednesday`s release of minutes of the latest Federal Reserve Open Market Committee meeting to see how close the Fed was to hiking rates last month.