LONDON: The dollar rose to a one-week high against a basket of major currencies on Wednesday, boosted by hawkish comments by U.S. Federal Reserve officials and safe-haven demand following Tuesday's deadly attacks in Brussels.
Three-month sterling implied volatility soared as investors prepared for turbulence exactly three months before a referendum of Britain's EU memberhip. The currency had been been the biggest loser among major currencies on Tuesday, with the events in Brussels seen boosting the "Brexit" campaign.
The euro had also fallen after the attacks, which killed at least 31 and injured more than 200, and the currency was again weaker on Wednesday, hitting a one-week low of $1.1180.
But that was partly due to broad strength in the dollar, which was boosted after comments supporting more U.S. interest rate hikes from the heads of the Philadelphia and Chicago Federal Reserves.
"This week you've had U.S. inflation data tick up a bit, some hawkish comments, and then you've had that big paring back in dollar longs over the past year," Rabobank currency strategist Jane Foley said. "That suggests to me it might be difficult for the dollar to carry on going down... The Fed is still the only central bank in rate hike mode in the G10."
"The euro yesterday did not exhibit safe-haven behaviour after the awful attacks in Brussels," Foley said. "That strengthens the idea that the euro's supposed safe-haven status over the past year was really a result of short-covering."
The dollar index, which tracks the U.S. currency against six major rivals, rose about 0.3 percent to 95.920.
Philadelphia Fed President Patrick Harker said the central bank should consider another hike as early as next month if the U.S. economy continues to improve, and that he would prefer at least three hikes before year-end.
Chicago Fed President Charles Evans also said he expects two more rate increases this year, unless economic data comes in a lot stronger than expected or inflation picks up faster than anticipated.
Evans does not have a vote on policy this year, but he is known as one of the U.S. central bank's most dovish policymakers. His remarks followed comments from three other Fed officials on Monday that all suggested rate increases might be on the way sooner rather than later.
"Evans normally leans towards lower rates so it is interesting that he is happy to talk about two hikes this year, with markets only priced for one," Westpac senior currency strategist, Sean Callow, said in a note.
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