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(Updates as of 0309 GMT)
By Ankur Banerjee
SINGAPORE, Jan 16 (Reuters) - The dollar rose on Tuesday as investors pared back bets on near-term rate-cuts by the U.S. Federal Reserve following hawkish comments from European Central Bank officials, while worries of more attacks on ships in the Red Sea weighed on risk sentiment.
Against a basket of currencies, the dollar rose 0.253% to 102.90, after having gained 0.2% overnight in subdued trading during a U.S. public holiday on Monday.
The euro fell 0.3% to $1.09185, set for its steepest one-day percentage drop in two weeks. Sterling was last at $1.2681, down 0.36% on the day, edging away from a near-five month high of $1.2825 hit late December.
Comments from European Central Bank officials pushing back against early rate cuts cast a shadow on rates outlook globally. "It's too early to talk about cuts, inflation is too high," ECB's Joachim Nagel said on Monday, adding that the mistake of lowering interest rates too early should be avoided.
Money markets are pricing in 145 basis points worth of cuts to the ECB's deposit rate this year, most likely starting in April.
"The hawkish ECB commentaries last night have fuelled concerns that market pricing for the Fed rate path may also be aggressive," said Charu Chanana, head of currency strategy at Saxo in Singapore.
"Some safe-haven demand also likely to be at play with Red Sea disruptions escalating."
An official from Yemen's Houthi movement said on Monday the group will expand its targets in the Red Sea region to include U.S. ships, vowing to keep up attacks after U.S. and British strikes on its sites in Yemen.
Investors are now bracing for comments from the Federal Reserve's Christopher Waller, whose dovish turn in late November helped to send markets soaring in a blistering year-end rally. Waller is due to speak later on Tuesday.
Markets are pricing in a 70% chance of a 25 basis points (bps) cut in March from the Fed, versus 77% a day earlier, and 63% a week earlier, the CME FedWatch Tool showed, highlighting the shifting expectations on rate cuts.
However, traders are projecting cuts of over 160 bps this year, up from 140 bps of easing projected last week.
"We think the market may have got ahead of itself pricing almost seven 25 bp cuts from the Fed this year," said Hamish Pepper, fixed income and currency strategist at Harbour Asset Management, adding the dollar is likely to find support if markets reassess easing expectations and push short-term interest rates higher.