(Adds comments, updates prices)
* U.S. rate hike imminent after Fed's two-day policy meeting
* European currencies kept under pressure by political risks
* Focus on what kind of message Fed to deliver
* Sterling hits 8-week low
By Gertrude Chavez-Dreyfuss
NEW YORK, March 14 The dollar rose on Tuesday,
bolstered by a widely expected U.S. interest rate increase from
the Federal Reserve this week and bolstered by political risks
in Europe as Dutch elections get under way.
The Fed started its two-day monetary policy meeting on
Tuesday, with the futures market pricing in a 95 percent chance
of a U.S. interest rate increase on Wednesday.
"Any hint that further policy normalization over the coming
months is likely should keep the dollar biased higher," said
Omer Esiner, chief market analyst, at Commonwealth Foreign
Exchange in Washington.
"Additional hikes in June and September would open up the
calendar for a possible fourth interest rate hike this year at
the Fed's final meeting of 2017 in December," he added.
The dollar index, which measures the greenback against a
basket of six major currencies, climbed 0.4 percent to 101.71
The market is now focused on the Fed's so-called dot plots
or interest rate forecasts.
James Chen, head of research at Forex.com in Bedminster, New
Jersey, noted that should the U.S. central bank signal a fourth
rate increase in 2017, from an earlier forecast of just three
hikes, this would further propel the dollar.
A higher-than-expected rise in a U.S. inflation gauge added
to the dollar's positive tone and further reinforced already
firm expectations of a Fed rate hike on Wednesday.
Data showed that U.S. producer prices rose more than
expected in February and the year-on-year gain was the largest
in nearly five years.
The euro, which hit a five-week high on Monday above $1.07
on expectations the European Central Bank could wind down
its stimulus program, fell 0.4 percent to $1.0609 on caution
ahead of the Dutch vote.
That extended falls from the previous day on comments by ECB
officials that were seen as relatively dovish.
The Netherlands will vote on Wednesday in an election that
is seen as a fresh test of the anti-immigrant, populist politics
that swept across the West in 2016.
Polls suggest the government may lose about half its seats
while the anti-Islam Party for Freedom (PVV) party of right-wing
nationalist Geert Wilders surges. Though Wilders has little
chance of winning enough seats to form a government, a PVV win
would send fresh shock waves across Europe.
Sterling, meanwhile, slipped 0.5 percent to $1.2158
, after earlier falling to an eight-week low, amid
worries about a possible second Scottish independence referendum
and the triggering of Article 50, which will formally begin the
negotiations that will take Britain out of the EU.
(Additional reporting by Jemima Kelly in London, editing by G