(Bloomberg) -- The dollar strengthened and Treasuries extended their steepest monthly loss since June 2015 as signs of a steady labor market and hawkish rhetoric from Federal Reserve officials over the past two weeks steered financial markets.
The U.S. currency rose for a fourth day, adding to the advance after a private jobs report showed firms added workers in line with estimates. Ten-year Treasury yields rose as traders almost doubled bets of a September Fed rate increase to 36%. The S&P 500 Index halted a five-month rally. Oil trimmed its advance in the best month since April.
The Bloomberg Dollar Spot Index is poised for its first monthly gain since May as prospects for higher U.S. borrowing costs diverge with policy in Europe and Japan, where central banks stand ready to boost stimulus. While ADP Research Institute reported jobs data in line with estimates for this month, it revised higher the figure for July, before Friday's monthly payrolls data. Fed Vice Chairman Stanley Fischer said on Tuesday that any rate move in September will be data dependent.
"The ADP report coming in a little bit stronger than expected gives the market reason that the Fed may be that much closer to raising rates," said Robert Pavlik, who helps oversee $9.1 billion as chief market strategist at Boston Private Wealth. "Watch the dollar today."
U.S. firms added 177,000 jobs in August, more than the 175,000 median estimate in a Bloomberg survey, according to ADP in Roseland, New Jersey. It revised the July figure to 194,000 from 179,000 reported last month.
CURRENCIES
The Bloomberg Dollar Spot Index added 0.2% at 9:30 a.m. in New York, leaving it 0.8% higher in August after closing at the highest since July 28 on Tuesday. It gained 0.5% to 103.45 yen, extending this month's advance to 1.4%.
Prices for Fed funds futures imply a 60% chance of an interest-rate increase this year, up from 36% at the start of the month.
New Zealand's dollar strengthened 0.4% on Wednesday, extending this month's gain, as a report showed business confidence in the nation was at a 20-month high.
A gauge of emerging-market currencies was little changed in August. South Africa's rand slid 4.5% after a police summons for Finance Minister Pravin Gordhan heightened political risk in the country, while Russia's ruble gained 1.2% amid a rebound in oil.
Brazil's real strengthened 0.3% as the impeachment trial of suspended President Dilma Rousseff neared its end. The Lyxor ETF Brazil, an exchange-traded fund in Paris, rose 1.2%.
BONDS
The yield on 10-year Treasuries rose one basis points to 1.58%, up 13 basis points in August. The rate on two-year notes, the most sensitive to the monetary policy outlook, climbed 15 basis points this month to 0.80%, with the spread versus 30-year rates at the narrowest since January 2008 on Tuesday.
The Bloomberg Barclays US Treasury Index has declined 0.6% in August, set for the biggest monthly loss since June last year.
"A December hike remains very likely, although a bumper payrolls on Friday would make September more live," said Peter Jolly, the global head of markets research at National Australia Bank in Sydney. "The yield curve almost always flattens when the Fed raises rates. Curve flattening has not finished."
The World Bank is in the process of selling a bond denominated in the International Monetary Fund's Special Drawing Rights, the world's first such offering in three decades. The issuance is taking place in Shanghai before China's currency is included in SDRs from Oct. 1.
STOCKS
The S&P 500 dropped 0.1%.
The Stoxx 600 advanced 0.3%, on course for a 1.2% increase for August. Commerzbank rose 4% after Manager Magazin reported that rival Deutsche Bank AG considered the possibility of a merger. Deutsche Bank Chief Executive Officer John Cryan said Germany's largest lender is looking to shrink in size.
European banks are heading for their best monthly performance since February 2015, supported by earnings that beat analysts' estimates for the first time in a year. With economic data for the region exceeding forecasts for most of the last two months and the Federal Reserve likely to hike interest rates this year, investors expect profits at financial firms to improve, according to Simon Wiersma, an Amsterdam-based investment manager at ING Bank NV, which oversees about 26 billion euros ($29 billion).
Bouygues SA added 2.6% after the French building, media and telecommunications company said average revenue per mobile user stabilized and it reiterated a 2016 target to improve profitability.
COMMODITIES
Crude oil traded at $45.83 a barrel in New York before government data due Wednesday that's forecast to show U.S. stockpiles increased by 1.3 million barrels last week. The price surged 10% for this month amid speculation informal talks among OPEC members in Algeria next month will result in an output freeze.
Gold was headed for a monthly loss of almost 3% as the prospect of a Fed rate hike dulls the allure of assets that don't bear interest. This is the metal's first drop in August since 2009. Prices normally rise in this month on Indian buying. Holdings in gold ETFs rose about 25 metric tons this month, the smallest gain in 2016.
Copper slid 6.3% in London since July on concern a glut is worsening. It rose 0.5% on Wednesday after Chilean miner Codelco halted one mine and faced the possibility of a strike at another, threatening disruptions from the world's top supplier of the mined metal.
Corn was headed for a third monthly drop with prices touching $3.155 a bushel on Tuesday in Chicago, the lowest since 2009. The U.S. crop was rated 75% good-to-excellent as of Aug. 28, the highest since 1994, official figures show.
