By Richard Leong
NEW YORK (Reuters) - The dollar rose to a three-week peak against a basket of major currencies on Tuesday as investors raised their outlook on a faster pace of U.S. rate increases following comments from Federal Reserve Chair Janet Yellen.
Yellen's remarks reinforced recent remarks from other Fed policy-makers who like to see a faster adjustment to rates seen appropriate at this point of the economic expansion.
"The tone is overall more hawkish than what the market had expected. The market seems to be under-pricing an upcoming rate hike," said Omer Eisner, chief market strategist at Commonwealth Foreign Exchange Inc in Washington.
U.S. interest rates futures
"Waiting too long to remove accommodation would be unwise," Yellen said in prepared remarks before the U.S. Senate Banking Committee, the first of her two-day testimony before Congress.
Yellen is scheduled to appear before the House of Representatives Financial Services Committee at 10 a.m. (1500 GMT) on Wednesday.
In overnight trading, the dollar index (DXY) slipped after U.S. President Donald Trump's national security adviser Michael Flynn quit in a controversy relating to Russia.
Flynn's resignation raised worries about the Trump administration's ability to implement its economic policies, including planned tax cuts, which have been seen as bullish for the greenback and stocks.
The gauge of the greenback versus six major currencies (DXY) pared its initial losses after data showed U.S. producer prices posted the largest monthly rise in more than four years in January, supporting the view that domestic inflation is approaching the Fed's 2 percent goal.
The dollar index reached a three-week high at 101.38, reversing from a earlier drop to 100.90. It was last at 0.35 percent at 101.32.
The greenback hit a two-week peak of 114.47 yen
The euro fell 0.3 percent against the greenback
The euro has come under pressure from concerns about France's presidential election and Greek bailout talks.
Investors have grown jittery about a possible repeat of Brexit as polls showed National Front leader Marine Le Pen, who has promised to pull France out of the euro zone and hold a referendum on European Union membership, is leading in the first-round of the French presidential runoff.
