February 21, 2017 / 12:50 PM / 5 months ago

FOREX-Hints of March rate rise drive dollar higher

4 Min Read

* Dollar broadly higher after Harker, Mester comments

* Euro lower despite strong PMI surveys from France, Germany

* Sterling dips as policymakers testify in parliament

* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh

By Patrick Graham

LONDON, Feb 21 (Reuters) - The dollar rose broadly on Tuesday after two Federal Reserve policymakers pointed to a potential U.S. interest rates rise next month, turning attention to the bullish fundamentals of the world's biggest economy.

The move, a more than half percent gain for the greenback, drove the biggest fall in the euro in more than a month, with concerns over upcoming elections in France and the Netherlands also weighing on the single currency.

The greenback has struggled through the first two months of 2017, handing back all of the gains it made against the euro and several other major currencies after Donald Trump's election as U.S. president in November.

Signals that Trump's administration is unhappy with the dollar's strength have been one big part of those falls, along with worries that a sometimes chaotic first month in office does not bode well for the delivery of tax reform and new spending.

But against that are the solid economic data and rises in U.S. inflation that have led Fed policymakers including chair Janet Yellen to promise a rise in rates shortly.

Cleveland Fed President Loretta Mester said late on Monday she would be comfortable raising rates at this point if the economy maintained its current performance.

Market News International also quoted colleague Patrick Harker reiterating that a March rise was on the table.

"My sense, although we're not all in agreement (in this trading room), is that the dollar is just on a firmer footing," said Neil Mellor, a strategist with Bank of New York Mellon in London.

"Fundamentals have started to take a greater slice of the attention again, not least because of Janet Yellen's message last week. Whether it will stay like that is the big question."

The euro hit a six-day low of $1.0532 in morning trade in Europe, down 0.75 percent on the day. If sustained through U.S. trading, that would be its biggest daily loss since Jan. 18.

The dollar was also up 0.6 percent against the New Zealand dollar, 0.5 percent against its Australian counterpart and 0.7 percent against the Swiss franc.

Much attention has focused in recent days on risks around France's elections. One poll on Monday, while an outlier, showed the gap between centrist favourite Emmanuel Macron and far-right anti-EU nationalist Marine Le Pen shrinking to 16 points.

A strong batch of purchasing manager surveys out of France and Germany were not enough to halt the falls in the euro.

"The euro zone PMIs were all very strong, yet at the same time the euro has been very heavy this morning," said Gavin Friend, a currency analyst with National Australia Bank in London.

"We are still two months away from the French election but there is clearly some safe haven buying as we get nearer."

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Editing by Tom Heneghan

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