* Euro hit by nerves over French election
* Hawkish Fed comments underpin greenback
* FOMC minutes due to be released later in day
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Feb 22 The euro fell briefly below $1.05
for the first time in six weeks on Wednesday, hit by a
combination of concern over France's presidential election
campaign and growing expectations for a rise in U.S. interest
So far, concern that anti-EU candidate Marine Le Pen could
win in May and deliver a fatal blow to the euro project have
played out chiefly on the options market, where investors pay
less to bet on the currency falling.
Three-month risk reversals - the weight of bets against the
euro over bets on its strengthening - hit their most negative in
more than a year, surpassing levels seen after Britain's vote to
leave the European Union last year.
Implied volatility for the next three months, which allows
investors to protect themselves from swings in the currency - or
bet on such volatility - rose to the highest since mid-December.
Those moves are also beginning to seep into spot prices of
the euro, which are down around 2 percent in the last three
weeks and fell as low as $1.0497 in morning trade in Europe.
"This is politics as well as markets increasingly betting on
an imminent rate hike by the Fed," said Commerzbank strategist
Thu Lan Nguyen.
"Volatility is rising as investors start to prepare for the
elections. I think investors are going to play this (the
elections) on the options market. If you go short euro and you
are wrong, it is too directional."
The dollar was stronger for the second day running, gaining
around a third of a percent against the basket of currencies
used to measure its broader strength.
But it dipped around a third of a percent against the yen,
which tends to benefit when investors grow more worried about
global political risks.
Against sterling, the dollar gained 0.1 percent to $1.2466.
U.S. Federal Reserve meeting minutes due later on Wednesday
could either reinforce or undermine recent hawkish comments from
central bank policy makers that have raised bets on a rise in
rates as early as next month.
Cleveland Fed President Loretta Mester said late on Monday
in a speech in Singapore that she would be comfortable raising
rates at this point if the economy maintained its current
Philadelphia Fed President Patrick Harker also told
reporters on Monday that he would support a rate increase at a
mid-March policy meeting as long as inflation, output and other
data continued to show the U.S. economy is growing.
"The dollar was pushed up by the Fed talk, but its upside
(was) heavy in the Asian session, due to factors including
Japanese companies' seasonal repatriation," said Mitsuo
Imaizumi, chief currency strategist at Daiwa Securities in
"We're all waiting for the minutes, to see if members talked
about reducing the Fed's balance sheet," he said.
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
(Writing by Patrick Graham, editing by Larry King)