Dollar up as Brexit fears contrast with solid U.S. data, Fed speakers

By Dion Rabouin

NEW YORK (Reuters) - The dollar rose on Tuesday, bouncing from 4-month lows, as a top Federal Reserve official reinforced expectations of more U.S. rate hikes to come while political uncertainties surrounding Britain's exit from the EU pressured European currencies.

Fed Vice Chairman Stanley Fischer said two more increases of U.S. overnight interest rates this year seemed "about right" during a television interview.

Also lending support to the dollar was data on U.S. consumer confidence that showed a reading at the highest level in more than 16 years.

The dollar strengthened against most major currencies in midday trading after being flat to lower earlier in the day.

It was last up 0.6 percent against a basket of major currencies (.DXY) that measures its overall strength to 99.711, the strongest one-day percentage gain since March 1.

"Better consumer sentiment comes along with better consumption and spending, which is positive for the U.S. growth outlook," said Sireen Harajli, currency strategist at Mizuho Corporate Bank in New York.

Additionally, Harajli said, the dollar "fell quite a bit yesterday after the healthcare repeal kind of fell apart (on Friday), so we might be seeing a little bit of a bounce back after Monday's lows."

Still, analysts say they are expecting the dollar's long-term trajectory to turn lower as U.S. President Donald Trump struggles to get his campaign agenda of tax cuts and infrastructure spending through Congress.

The euro and British pound fell to session lows against the greenback during afternoon trading as investors braced for the United Kingdom to trigger Article 50 of the European Union constitution on Wednesday, exiting the EU.

The euro fell 0.5 percent against the dollar to $1.081. Sterling dipped 0.8 percent to $1.245.

The move lower also coincided with news that Scotland's parliament had backed a vote for independence but that the British government would not enter independence negotiations.

"The U.S. fundamental picture hasn’t really changed," said Alfonso Esparza, senior currency strategist at Oanda in Toronto. "Political uncertainty is still higher than the market would like it in the states, but it’s getting literally trumped by political risk from Brexit and further down the line the French elections."

The dollar also rose 0.4 percent against the yen and gained 0.7 percent against the Swiss franc as safety buying unwound and the dollar strengthened.

(Reporting by Dion Rabouin; Editing by Andrea Ricci)