* Dollar recovers after start of European trade
* Sterling falls then rises on new Scottish referendum call
* Comments by Belgium's Smets rows against ECB rate hike
* ECB's Draghi, Lautenschlaeger due to speak later
By Patrick Graham
LONDON, March 13 The dollar recovered a foothold
on Monday after its worst three days of losses since early
December, the impact of higher U.S. market interest rates
turning it positive on the day against both the euro and
a basket of currencies.
Sterling, along with the Canadian dollar the worst major
performer of the past fortnight against the greenback, rose
almost half a percent after the devolved Scottish government
demanded the right to hold a new referendum on independence.
But a gain of 0.2 percent for the dollar put an end to a
wave of profit-taking that has taken hold since last Thursday's
policy meeting yielded hints the European Central Bank is
starting to think more about how to react to an improving euro
Friday's solid jobs number has still cemented the case for a
rise in U.S. Federal Reserve rates this week that will long
predate any rise in the European equivalents, and long-term
market rates are also far higher.
Belgian central banker Jan Smets also told the Wall Street
Journal that the ECB had not taken a first step towards removing
"There was also always the chance that once we got a good
payrolls number on Friday, the market would take some money off
the table and that duly occurred," said Neil Mellor, a currency
strategist with Bank of New York Mellon in London.
"But the fundamentals are still behind the dollar. A lot is
priced in but when you have a currency that is outstanding in
terms of yield, the sell off was always going to be limited."
By midday in London, the dollar had recovered half a cent
from lows hit in Asian time to trade 0.2 percent higher on the
day at $1.0657. The dollar index was also 0.1 percent higher on
the day at 101.36, some way off highs above 102 hit a week ago.
In a week expected to see Britain formally lodge its request
to leave the European Union, sterling initially fell on Scottish
First Minister Nicola Sturgeon's call for a new referendum on
But her timing of it - at earliest the end of next year,
when Brexit negotiations are expected to be concluded - headed
off the chance of another big political risk being added to what
may prove a turbulent 12 months.
"Sturgeon in the end did not say anything that changed what
we had assumed would happen sooner or later," said a dealer with
one bank in London.
"The worry was they would push for it to happen immediately.
That said, there is so much political risk in the next few
months and the economy does not look as ready as it did to ride
it all out."
For the dollar, Fed fund futures prices show investors price
in more than a 90 percent chance of an increase in official U.S.
interest rates on Wednesday and the market's attention is now
firmly on the scale of tightening further out.
Money market pricing is still stuck at three quarter-point
rises this year. If the Fed can continue to move every three
months, it will deliver four, and any rise in conviction on that
scenario should boost the dollar.
"If the economic outlook evolves in line with our
economists’ expectations, we are likely to see the Fed members
guide the markets towards a faster pace of hikes than is being
currently discounted over the medium-term," analysts from
Goldman Sachs said in a note.
(EEditing by Catherine Evans)