Dollar rallies on rate hike view as euro skids

By Ian Chua

SYDNEY (Reuters) - The dollar hovered at its highest in over a week against a basket of major currencies early on Wednesday, a day after its biggest one-day bounce this month as the market's focus shifted from Greece to prospects for higher U.S. interest rates.

Reasonably positive U.S. data and comments from Federal Reserve Governor Jerome Powell, who said he was prepared to raise interest rates twice this year, helped sustain a rally in Treasury yields and the greenback.

The dollar index last stood at 95.405, having climbed 1.2 percent on Tuesday - its best daily performance since late May.

The greenback was particularly strong against the euro, which slid about 1.5 percent to $1.11350 , its lowest in more than two weeks. It last stood at $1.11700, little changed from late New York levels.

The common currency was also sharply lower against other major peers.

Against the yen, the euro bought 138.400 , having fallen as far as 138.215 - a low last seen on June 15. In contrast, the dollar climbed to a one-week high of 124.185 , before stepping back to 123.900.

The moves appeared to be driven by positioning rather than fundamentals, said Greg Moore, senior currency strategist at RBC.

"At the margin U.S. data that was on balance slightly positive, and the Fed's Powell revealing his forecast for two hikes this year may have supported price action, but EUR and USD were already on the move prior to those developments."

U.S. data on Tuesday showed new home sales increased to a more than seven-year high in May, while a gauge of U.S. business investment spending plans rose.

There was no major development in talks between Greece and its creditors but investors remained hopeful that a deal will be reached soon. Greek shares <.ATG> rallied 6.1 percent on Tuesday.

"Markets appear to have interpreted the prospect of a deal between Greece and its creditors as removing a source of uncertainty, which may allow the Fed to commence hiking interest rates in September," analysts at ANZ wrote in a note to clients.

Greece's Prime Minister Alexis Tsipras will meet European Central Bank President Mario Draghi, IMF head Christine Lagarde and European Commission President Jean-Claude Juncker on Wednesday.

The meeting will take place in Brussels in the afternoon, before a 1700 GMT meeting of the euro group of finance ministers that will aim to end the logjam in debt negotiations.

(Editing by Edwina Gibbs)