February 28, 2018 / 12:57 AM / 19 days ago

FOREX-Dollar near 3-week high, Powell's maiden testimony boosts rate hike bets

* Dollar index clings near 3-week high set on Tuesday

* Euro touches its lowest since Feb. 9

* Fed’s Powell strikes hawkish tone in 1st testimony

By Masayuki Kitano

SINGAPORE, Feb 28 (Reuters) - The dollar stood near a three-week high against a basket of currencies on Wednesday, after Federal Reserve Chairman Jerome Powell’s upbeat views on the economy bolstered bets on further Fed interest rate hikes this year.

Testifying before the U.S. House of Representatives’ Financial Services Committee, Powell acknowledged the economy had strengthened recently, a remark that prompted investors to increase bets on four rate increases in 2018.

The Fed’s last round of economic projections in December pointed to three rate increases this year.

The dollar index, which measures the greenback against a basket of six major currencies, last stood at 90.414, after hitting a high near 90.50 on Tuesday, its strongest level in almost three weeks.

“Personally, I wonder whether his (Powell’s) comments were all that bullish on the economy, but that seems to be the market’s interpretation,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Some of the headwinds the U.S. economy faced in previous years have turned into tailwinds, Powell said, noting recent fiscal policy shifts and the global economic recovery.

The Fed is expected to approve its first rate increase of 2018 at its next policy meeting in March, when it will also provide fresh economic projections and Powell will hold his first news conference.

Against the yen, the dollar rose 0.1 percent to 107.43 yen , after gaining 0.4 percent on Tuesday, continuing its recovery from a 15-month low of 105.545 yen set on Feb. 16.

The potential for dollar-selling by Japanese players ahead of Japan’s financial year-end in March might temper the dollar’s gains over the next few weeks, said Sumitomo Mitsui Banking Corporation’s Okagawa.

“Once we get past the middle of March and (flows from) exporters and repatriation abate, the dollar will probably gradually show firmness against the yen,” Okagawa said.

The euro held steady at $1.2235, after briefly slipping to $1.2221 its lowest since Feb. 9. The common currency has lost momentum since hitting a three-year high of $1.2556 on Feb. 16.

The euro could be subject to potential swings in price, analysts said, as Italians prepare to vote in a national election on Sunday, and the leading political parties in Germany decide on a coalition deal that could secure Angela Merkel a fourth term as chancellor. (Reporting by Masayuki Kitano; Editing by Simon Cameron-Moore)

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