March 1, 2018 / 9:31 AM / 2 years ago

FOREX-Dollar hits six-week high as Powell bolsters rate hike bets

* Powell drives expectations of 4 rate hikes this year

* Euro hits 6-week low vs dollar, 6-month trough vs yen

* Soft euro zone manufacturing PMI nudges euro lower

* Aussie falls to 2-month low after data disappoints

* Graphic: World FX rates in 2018

By Jemima Kelly

LONDON, March 1 (Reuters) - The dollar hit a six-week high on Thursday, supported by what was perceived as an upbeat tone from new Federal Reserve chief Jerome Powell on the U.S. economy, bolstering bets that interest rates will be hiked four times this year in the United States.

In contrast, soft inflation data in the euro zone dented expectations that the European Central Bank will dial back its stimulus this year, slamming the euro to six-week lows against the dollar and a six-month trough against the yen .

Data on Thursday showing the currency bloc’s manufacturing boom slowed a little further last month added to a downbeat mood, nudging the euro down close to its low of $1.21835.

The dollar index climbed to 90.744, with Powell’s optimism on the economy in his first public testimony as Fed chair suggesting the U.S. central bank is going to raise interest rates one more time than the three hikes markets had expected.

“Hawkish comments from Powell have fuelled market speculation of the Federal Reserve raising US interest rates four times this year — ultimately supporting the dollar,” said Lukman Otunuga, Research Analyst at FXTM.

“Market expectations of higher U.S. rates could intensify further if the new Fed head doubles down on hawkish comments.”

Powell will continue his testimony to U.S. Congress later in the day.

In contrast, ECB president Mario Draghi said on Monday that slack in the euro zone economy may be bigger than previously estimated.

“Draghi wasn’t that aggressive when he spoke earlier this week, so there is a clear contrast,” said Bart Wakabayashi, Tokyo Branch Manager at State Street.

Against the yen, the single currency fell to 129.86 yen , its weakest since early September and down 5.6 percent from its 2-1/2-year high hit just a month ago.

The euro was also hurt by political uncertainties as Italians are preparing to vote in a national election on Sunday, while the leading political parties in Germany decide on a coalition deal that would secure Angela Merkel a fourth term as chancellor.

The dollar index is still down 1.5 percent this year, dogged by suspicions that the Trump administration prefers a weaker dollar to mend its bulging trade deficit, and worries its big tax cuts and spending plans may boost fiscal deficits to an extent that they undermine confidence in U.S. debt.

The Australian dollar hit a two-month trough versus the dollar and a nine-month low versus the yen after data on Australian business investment showed a 0.2 percent dip for the December quarter, missing forecasts for a 0.9 percent increase.

The Australian dollar traded 0.5 percent down at $0.7725, having briefly fallen to as low as $0.7717. (Reporting by Jemima Kelly Editing by Catherine Evans)

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