(Updates prices, adds comments; changes byline, dateline, pvs
* Euro hit by nerves over French election
* Hawkish Fed comments underpin greenback
* FOMC minutes due to be released at 2 p.m. ET (1900 GMT)
* Two-yr German/U.S. bond spread hits 17-year high
By Sam Forgione
NEW YORK, Feb 22 The euro hit a six-week low
against the dollar on Wednesday on concern over France's
presidential election campaign, a growing gap between U.S. and
euro zone interest rates and the increasing risk of a rate
increase from the Federal Reserve in March.
Concerns that anti-EU candidate Marine Le Pen could win in
May and deliver a fatal blow to the euro project have pushed the
euro lower and increased bets on volatility in the currency.
Implied volatility for the next three months, which allows
investors to protect themselves from swings in the euro - or bet
on such volatility - rose to the highest since mid-December.
The euro fell below $1.05 for the first time in six weeks to
$1.0494 in early trading. Concerns over French politics have
added to demand for the euro zone's safest debt, pushing
two-year German government bond yields to new record lows and
the premium investors get for holding the equivalent U.S. bonds
to its highest in nearly 17 years.
"Relative to the Greek experience, it is much clearer for my
money that if France was to leave it would be a much more
negative event for the euro than if Greece was to leave," said
Roger Hallam, Chief Investment Officer for currencies with JP
Morgan Asset Management in London.
The dollar index, which measures the greenback against a
basket of six major rivals, was last up 0.3 percent at 101.670
after hitting a one-week high of 101.720.
The worries of a potential French exit from the European
Union boosted the safe-haven yen. The dollar was last down about
0.5 percent against the Japanese currency at 113.14 yen after
hitting a session low of 112.91 yen.
The Fed will release the minutes of its Jan. 31-Feb. 1
meeting at 2:00 p.m. ET (1900 GMT). Investors were awaiting the
minutes to assess whether they reinforce or undermine recent
hawkish comments from central bank policy makers, which have
bolstered market bets on a rise in rates next month.
Fed funds futures on Wednesday implied traders saw just a
17.7 percent probability of a Fed rate increase in March. That
low probability raised the risk of a bump higher in
"If the minutes suggest that there’s a pretty wide consensus
that the Fed will consider a rate increase in March...I think
that could lift the dollar," said David Gilmore, partner at FX
Analytics in Essex, Connecticut.
(Reporting by Sam Forgione; Additional reporting by Patrick
Graham in London; Editing by Alistair Bell)