LONDON: The dollar traded close to a three-month high against the yen on Thursday, underpinned by higher US bond yields and growing expectations that the US Federal Reserve will raise interest rates by the end of the year.
Sweden's crown fell towards a 6-1/2-year low after the country's central bank left monetary policy unchanged but said the chances of it cutting interest rates further had increased.
The market is now pricing in a 74-percent chance that the Fed will raise rates at its December meeting, according to CME Group's FedWatch tool, following a series of hawkish comments from Fed policymakers.
Those expectations have driven the dollar to nine-month highs against a basket of currencies this week, and it was up 0.1 percent on Thursday at 98.716, just off those highs.
Bets on a 2016 Fed rate hike have also pushed up US 10-year Treasury yields, which rose to 1.813 percent in Asian trade, their highest since this month's five-month high of 1.814 percent. In turn, those have supported the dollar.
"We're see a renewed pick-up in Fed rate hike expectations, which will likely intensify going into the November Fed meeting next week," Credit Agricole's head of G10 currency research, Valentin Marinov, said.
"We will be looking for an explicit indication in the statement that rates will be going higher in December."
Marinov said that the dollar was also being supported by a pick-up in corporate demand for dollar funding into the end of the year.
Against the yen, the greenback rose 0.2 percent to 104.65 , just off its high of 104.875 touched on Tuesday.
With the Bank of Japan seen likely to keep its monetary policy steady for a while and to stick to its pledge to guide 10-year government bond yields around zero percent, US bond yields will be the main driver for dollar/yen for the time being, UBS Wealth Management FX strategist, Tan Teck Leng, said.
Norway's crown rose around half a percent after the central bank left interest rates unchanged and signalled that they would remain at their current levels in the period ahead.
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