* Dollar index hovers near post-payrolls 7-month peak
* Euro pressured by rising ECB rate cut risk
* Treasury/Bund spread eyed for further euro losses
By Anirban Nag
LONDON, Nov 10 (Reuters) – The dollar inched up towards a seven-month peak against a basket of major currencies on Tuesday, bolstered by widening rate differentials in favour of U.S. Treasuries on expectations the Federal Reserve will raise interest rates next month.
The dollar index rose 0.1 percent to 99.072, moving back toward Friday’s peak of 99.345, a high not seen since mid-April. Against the yen, the dollar was buying 123.35 yen , up 0.2 percent on the day and nor far from the previous day’s 2-1/2-month high of 123.60.
The euro traded at $1.0750, not far from Friday’s seven-month low of $1.07045, having lost 2.3 percent so far this month.
Analysts said a widening spread between 10-year Treasuries and German Bunds, currently at 167 basis points, was likely to underpin the dollar and keep the euro on the defensive.
The single currency had briefly come under pressure on Monday after four governing council members said a consensus is forming at the European Central Bank to take one of its benchmark interest rates deeper into negative territory in December.
“If the Treasury/Bund spread rises above 170 basis points, we could see some more fragility in the euro,” said Jeremy Stretch, head of currency strategy at CIBC World Markets. “Until it stays below $1.0820, the path of least resistance for the euro will be to the downside.”
Traders will eye comments from Bundesbank chief Jens Weidmann, one of hawks on the ECB governing council, as he speaks for the first time since the central bank hinted at more policy easing.
In sharp contrast to the ECB, the Fed is considered very likely to tighten U.S. monetary policy in December for the first time in nearly a decade, following Friday’s robust jobs data.
Even Eric Rosengren, the dovish president of the Boston Fed, pointed to December as an appropriate time to begin raising rates.
“The U.S. is out in front on its own, and everyone else is heading the other way. In that case, positioning becomes very key, if the interest-rate story is going to be centre-stage,” said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.