* Dollar reaches three-week highs against euro, yen
* Top Republicans talks up chances of U.S. tax reform in 2017
* Sterling drops after BoE's Carney cools rate-hike bets
* Fed's Dudley sees U.S. wages, inflation rebounding
(Updates market action, adds quote) NEW YORK, June 20 (Reuters) - The dollar hit a one-month high on Tuesday against a basket of currencies on the view the Federal Reserve may raise interest rates once more this year, while sterling tumbled after the Bank of England's head threw cold water on the notion it was close to raising rates. The greenback grinded higher following comments from New York Fed President William Dudley on Monday who said further improvement in the U.S. labor market would kindle inflation, which has shown signs of flagging in recent months. If it were to rebound, this would leave the door open for the possibility of another rate hike by year-end after two hikes so far this year.
The U.S. central bank as expected raised key overnight borrowing costs by a quarter point to 1.00-1.25 percent last Wednesday. "We had a hawkish Fed last week. We seemed to have had a delayed reaction as the dollar had been oversold," said Mazen Issa, senior currency strategist at TD Securities in New York. Since last week's Fed meeting, a few policy-makers expressed caution about another rate increase in the coming months. Chicago Fed President Charles Evans said on Monday it may be worthwhile for the Fed to wait until year-end to decide on another rate hike due to recent weak inflation data. The dollar also received support on remarks from top Republicans who spoke of completing U.S. tax reform in 2017, widely seen as a likely boost to economic growth. Doubts persist whether it is possible due to the divides within the Republican party and its acrimony with Democrats, analysts said. "There might be tax reform this year," said Stan Shipley, strategist at Evercore ISI in New York. "But that's a brave assumption." The index that tracks the greenback versus six currencies was up 0.3 percent at 97.800 after touching 97.871 earlier Tuesday, which was the highest since May 18. The euro fell to a three-week low of $1.1117, while the dollar reached 111.86 yen, the highest since May 26, Reuters data showed. The dollar fared best against the British pound among major currencies. It gained after BoE Governor Mark Carney said now was not the time to raise UK interest rates. Last week three BoE policymakers had voted in favor of a rate hike. Carney warned of weak wage growth and a likely hit to incomes as Britain prepares to leave the European Union, sending sterling to a two-month low of $1.2603, down 0.9 percent.
Currency bid prices at 1431 EDT (1831 GMT):
Description RIC Last U.S. Close Pct YTD Pct High Bid
Previous Change Change
Euro/Dollar EUR= $1.1125 $1.1148 -0.21 +5.82 +1.1165 +1.1119 Dollar/Yen JPY= 111.4400 111.5100 -0.06 -4.65 +111.7800 +111.3200 Euro/Yen EURJPY= 123.98 124.31 -0.27 +0.68 +124.6300 +123.9200 Dollar/Swiss CHF= 0.9756 0.9754 +0.02 -4.15 +0.9766 +0.9726 Sterling/Dollar GBP= 1.2622 1.2732 -0.86 +2.32 +1.2757 +1.2603 Dollar/Canadian CAD= 1.3254 1.3216 +0.29 -1.31 +1.3284 +1.3205 Australian/Doll AUD= 0.7581 0.7594 -0.17 +5.07 +0.7623 +0.7571
Euro/Swiss EURCHF= 1.0852 1.0874 -0.20 +1.26 +1.0881 +1.0852 Euro/Sterling EURGBP= 0.8811 0.8751 +0.69 +3.44 +0.8834 +0.8739 NZ NZD= 0.7246 0.7230 +0.22 +4.39 +0.7267 +0.7221
Dollar/Norway NOK= 8.5508 8.4999 +0.60 -1.00 +8.5656 +8.4634 Euro/Norway EURNOK= 9.5117 9.4776 +0.36 +4.69 +9.5335 +9.4414 Dollar/Sweden SEK= 8.7901 8.7414 +0.38 -3.49 +8.7991 +8.7257 Euro/Sweden EURSEK= 9.7793 9.7427 +0.38 +2.08 +9.7934 +9.7344
(Additional reporting by Jemima Kelly in Paris; Masayuki Kitano in Singapore; Editing by Hugh Lawson and Tom Brown)