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By Bloomberg

Traders are seeing about even odds on a September interest-rate increase in the U.S., pushing a gauge of the dollar to the highest level in more than four months.

The U.S. currency advanced for a third day versus the euro as markets moved closer to the prospect of a 25 basis-point increase in interest rates by the Federal Reserve in September. An ADP report due Wednesday and a Labor Department report Friday are both forecast to show employers added more than 200,000 jobs for a third month in July. The dollar rose after Federal Reserve Bank of Atlanta President Dennis Lockhart told the Wall Street Journal the Fed was close to raising rates next month.

“The dollar is expected to remain in the bull market, at least until the ADP release later in day, following Lockhart’s call for the September hike,” said Ipek Ozkardeskaya, a strategist at trading and advisory firm London Capital Group Ltd. The jobs report “is the key macro data of the week. A reading above 200,000 should keep the speculation of a September hike well alive.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.2 percent to 1,217.45 as of 11:40 a.m. London time, after touching 1,218.28, the highest level since March 16. The U.S. currency strengthened 0.2 percent to $1.0855 per euro and was little changed at 124.43 yen.

Employment Forecasts

ADP employment data for July due Wednesday are forecast to show a fall to 215,000 from the previous reading of 237,300. That is followed by the more closely-watched U.S. payrolls figures, which rose by 225,000 in July, according to the median estimate of analysts surveyed by Bloomberg. That compares with 223,000 a month earlier.

Traders priced in a 50 percent probability that the Fed will raise borrowing costs in September, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. The probability stood at about 42 percent a week ago.

The dollar has been the best performer in a basket of 10 developed-nation peers in the past three months after the pound. The U.S. currency has appreciated 5.9 percent in the period, according to Bloomberg Correlation-Weighted Indexes.

Worst Performance

The worst performance against the dollar among its Group- of-10 counterparts in the past three months has been in currencies from commodity-exporting nations. The New Zealand dollar has declined 14 percent. The Canadian dollar, Aussie and Norwegian krone have also fallen at least 7 percent.

As Fed Chair Janet Yellen leads the Fed toward its first rate increase in almost a decade, she has reiterated that moves by the central bank will ultimately depend on economic data.

Lockhart, who votes on the Federal Open Market Committee this year, said in the interview that it would take significant deterioration in economic data to convince him to put off increasing rates next month.

“While we are patiently dollar-bullish, we don’t want to get too ahead of ourselves on the back of Lockhart’s comments,” said Sam Lynton-Brown, a foreign-exchange strategist at BNP Paribas SA in London. He said they were “quite cautious,” ahead of Friday’s jobs data.

“Our economists think if we get print above 275,000,” for both July and August’s readings, “that significantly raises the chance” of a September rate move.