U.S. Dollar and Stocks Climb as Prospects of a Rate Hike Improve

The U.S. dollar climbed to a 13-1/2-year high and global stock indexes rose on Thursday after comments by U.S. Federal Reserve Chair Janet Yellen bolstered the case for raising interest rates next month.

Yellen, who testified on the economic outlook before the congressional Joint Economic Committee, indicated little had changed following the victory of Donald Trump in the Nov. 8 U.S. presidential election.

She said she intended to serve out her term, which ends in 2018, and indicated the Fed remained on track to raise rates at its meeting next month.

Expectations have been high among investors that the Fed will raise rates in December.

Also helping the dollar was upbeat U.S. economic data, which stoked expectations of an acceleration in U.S. economic expansion in the fourth quarter.

The dollar index, tracking the greenback relative to a basket of six foreign currencies, extended gains in U.S. afternoon trading following Yellen's comments, and was last up 0.5 percent.

Strength in the dollar weighed on gold, which fell to a 5-1/2-month low of $1,210.73.

U.S. stocks, which rallied last week after Republican Donald Trump's surprise White House win on the potential for economic stimulus, also rose, led by gains in financials, which benefit from higher rates.

"Yellen gave a path that would confirm a rate increase and that certainly helps the banks, but also more importantly for the market as a whole, the Fed is still steady-as-she-goes and data dependent," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

The Dow Jones industrial average closed up 35.68 points, or 0.19 percent, to 18,903.82, the S&P 500 gained 10.18 points, or 0.47 percent, to 2,187.12 and the Nasdaq Composite added 39.39 points, or 0.74 percent, to 5,333.97.

MSCI's all-country world stock index was up 0.5 percent, while Europe's STOXX 600 rose 0.6 percent.

In the U.S. bond market, the yield curve steepened after the U.S. data suggested the labor market is tightening and inflation is beginning to gain traction.

That prompted investors to sell government debt with longer-dated maturities, while comments by Yellen added to the argument that a rate hike will come soon.

"Yellen is saying it's full steam ahead for a Fed hike in December," said Luke Bartholomew, fixed income investment manager at Aberdeen Asset Management. "The big question is what happens after that. Trump's election has given investors plenty of reason to question the lower-for-longer mantra."

U.S. consumer prices posted their biggest increase in six months in October, while housing starts surged to a 9-year high and jobless claims fell to the lowest since November 1973.

The 10-year note fell 16/32 in price to yield 2.281 percent. Yields on the 2-year note hit their highest since Jan. 5, rising to 1.034 percent.

Overseas, the Bank of Japan offered to buy unlimited bonds for the first time under a revamped policy framework as domestic debt yields surged in the wake of Trump's election victory.

Oil prices settled slightly lower, with the strength in the dollar overshadowing expectations of an OPEC deal to limit production. Brent crude fell 14 cents a barrel to settle at $46.49, and fell further in post-settlement trading. U.S. crude fell 15 cents to settle at $45.42.