Dollar rises modestly on rate hike bets, European worries

By Dion Rabouin

NEW YORK (Reuters) - The dollar edged higher against a basket of currencies on Tuesday but remained below highs touched in December and January after two weeks of growing expectations that the Federal Reserve would raise U.S. interest rates next week.

Some analysts said the currency was in a holding pattern ahead of Friday's U.S. non-farm payrolls report.

"A lot of us would've expected more of a reaction in the dollar, given the way expectations have gone up for an interest rate increase at the Fed meeting," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.

"The dollar's gains have been limited by uncertainty ahead of the payrolls report and lack of clarity on the fiscal side of the equation from (the Trump) administration."

Comments overnight by President Donald Trump's trade adviser, Peter Navarro, that the $65 billion U.S. trade deficit with Germany was "one of the most difficult" trade issues focused attention on concerns about the White House's attitude toward trade and the dollar ahead of Group of 20 meetings later this month.

Still, the greenback <.DXY> rose 0.15 percent against a basket of six major currency rivals, buoyed by falls in major European currencies.

Sterling fell to a seven-week low against the dollar after weak consumer spending data added to worries Britain's economy is slowing as it prepares to trigger its exit from the European Union.

The Swiss franc also fell to multiweek lows, with the U.S. dollar rising to its highest against the franc since Jan. 11 and the euro hitting its highest against the franc since Jan. 25.

Analysts said news of a rise in the Swiss National Bank's foreign exchange reserves and statements from SNB Chairman Thomas Jordan that the franc was "significantly over-valued" weighed on the currency.

"For the most part the SNB is still very much worried about Swiss (franc) weakness, and we had comments from Jordan suggesting that they were going to remain committed to keeping the currency weak," said Kathy Lien, managing director of BK Asset Management. "The U.S. dollar is trying to rise as well and that's contributing to the weakness in dollar/Swiss."

A back-and-forth performance for the Australian dollar after a meeting of the country's Reserve Bank grabbed some attention in a session marked by fairly tight trading ranges.

The Australian dollar was last up 0.1 percent at $0.7585.

(Reporting by Dion Rabouin; Additional reporting by Patrick Graham in London; Editing by Dan Grebler and Richard Chang)

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