TOKYO, Dec 20 (Reuters) - The U.S. dollar hovered near its highest point in 17 months against major peers on Monday after Federal Reserve officials signalled a first pandemic-era interest rate increase could come as early as March. The euro sank with the British pound after the Netherlands went into lockdown on Sunday and Britain"s health minister declined to rule out further restrictions before Christmas amid the rapid spread of the Omicron coronavirus variant. read more Although COVID-19 restrictions cloud the outlook for economic growth, they also risk keeping inflation elevated and turning central banks more hawkish. Fed Governor Chris Waller, a known hawk, said on Friday that he thought a rate increase in March would be "very likely" and that the central bank could start to run down it balance sheet in mid-2022. Meanwhile, erstwhile dove Mary Daly, president of the San Francisco Fed, refused to rule out a March increase and voiced support for as many as three increases next year. read more The Fed"s rapid hawkish tilt combined with Omicron"s troubling spread intensified a risk-off mood, which led investors to squirrel away their capital in safe havens, including Treasuries and the dollar, with moves exacerbated by year-end profit taking, said Ken Cheug, chief Asian foreign-exchange strategist at Mizuho Bank. The dollar index , which measures the currency against six major peers, stood at 96.629, not far from last month"s peak of 96.938, the highest since July 2020. The greenback touched its highest levels since Dec. 15 against the euro, sterling and the risk-sensitive Australian dollar, although it slipped against fellow haven currency the yen, but remained near the middle of the trading range of the past three weeks. Ten-year U.S. Treasury yields , to which the dollar-yen pair are often closely correlated, languished near a two-week low reached Friday. Money markets price about 50-50 odds of a quarter-point hike by March. Chris Weston, head of research at brokerage Pepperstone in Melbourne, warned that despite the tailwind from an increasingly hawkish Fed, the dollar may be vulnerable to a retracement. "Positioning is skewed long in USDs, so the prospect of position squaring into year-end is elevated," Weston wrote in a client note. "While central bank actions are the real issue, headlines on Omicron could be seen as the smoking gun for position squaring." ======================================================== Currency bid prices at 0530 GMT Description RIC Last U.S. Close Previous Session Pct Change YTD Pct Change High Bid Low Bid Euro/Dollar $1.1250 $1.1236 +0.14% -7.91% +1.1255 +1.1235 Dollar/Yen 113.4600 113.7400 -0.19% +9.90% +113.7000 +113.4800 Euro/Yen 127.64 127.77 -0.10% +0.57% +127.8200 +127.5300 Dollar/Swiss 0.9234 0.9241 -0.07% +4.38% +0.9244 +0.9234 Sterling/Dollar 1.3225 1.3233 -0.05% -3.19% +1.3243 +1.3223 Dollar/Canadian 1.2902 1.2894 +0.05% +1.31% +1.2905 +1.2886 Aussie/Dollar 0.7109 0.7127 -0.25% -7.59% +0.7134 +0.7105 NZ Dollar/Dollar 0.6722 0.6737 -0.22% -6.39% +0.6750 +0.6722