By Sam Forgione and Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The U.S. dollar climbed to its highest against the euro in more than seven months after Federal Reserve Chair Janet Yellen once again flagged an interest rate hike that may come in two weeks.
The greenback also touched its strongest level against the yen since around mid-November, on pace for its biggest one-day gain in three weeks.
In prepared remarks, Yellen said on Wednesday she was "looking forward" to a U.S. interest rate hike that will be seen as a testament to the economy's recovery from recession. She added that holding rates at zero for far too long could pose a risk to financial stability.
"Overall, Yellen gave a fairly positive assessment of the economy that would be consistent with the Fed raising rates at their December meeting," said Vassili Serebriakov, currency strategist at BNP Paribas in New York. He cited Yellen's remarks regarding reduced downside risks from abroad, strong household spending, and gains in the U.S. job market.
"The closer we get to the December meeting, even if the Fed keeps the core message intact, I think the markets will increasingly expect a hike."
The euro hit a 7-1/2 month low against the dollar of $1.0552 > following Yellen's remarks. It last traded at $1.0573, down 0.6 percent on the day. The euro has fallen in five of the last six sessions against the dollar.
The dollar, meanwhile, touched its highest in two weeks versus the yen at 123.66 yen > and was last up 0.7 percent at 123.56 yen.
Earlier in the session, U.S. private sector employment data also bolstered expectations of a rate increase this month.
U.S. private employers added 217,000 jobs in November, higher than forecast and the most since June.
The data came after a soft inflation reading from the euro zone bolstered bets that the European Central Bank would cut rates deeper into negative territory when it meets on Thursday, weighing on sentiment on the euro.
Anticipated Fed rate hikes are expected to boost the dollar by driving investment flows into the United States. The divergence in monetary policy between the ECB and the Fed boosted the dollar and hurt the euro, said Boris Schlossberg, managing director at BK Asset Management in New York.
"The ADP data confirm that the labour market data in the U.S. is healthy and robust," Schlossberg said. "That puts a December rate hike on track."
He also said there would be "massive pressure" on the ECB to expand its stimulus programme.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrew Hay)
