Array

TOKYO, Mar 20 (Reuters) The dollar hovered near a two-month low against the euro on Monday, carrying over from the previous week's weakness as traders scaled back their expectations about how much higher U.S. interest rates will climb.

The dollar fell for five straight sessions last week as a spate of downbeat U.S. economic data dented confidence that the Federal Reserve will boost rates again after an expected quarter percentage point rise to 4.75 percent next week.

Some also think the dollar's rate advantage will stop growing due to expectations that the European Central Bank will bump up rates again in coming months after lifting its key rate earlier in March to 2.5 percent.

''Given weaker numbers from the U.S. and fairly hawkish comments from the ECB regarding inflation, the market is not expecting the rate gap to widen,'' said the chief trader at a European investment bank in Tokyo. ''So that's not going to help the dollar go higher.

For insight on where the Fed might go from here traders will tune into a speech by Fed chief Ben Bernanke on monetary policy later in the day.

In early Asian trade, the euro was at $1.2175 down a tad on the day but within sight of $1.2208 hit on electronic trading platform EBS on Friday. That was its highest point since Jan. 27.

The dollar rose 0.2 percent to 116.15 yen not far from the two-week low of 115.70 yen marked on Friday.

The Australian dollar hit a three-month low against the U.S.

dollar On Friday, the Australian unit recorded its biggest one-day drop in almost nine months, driven by mounting expectations that the currency's rate premium is set to narrow across the board.

The New Zealand dollar has fared worse, and was hovering near a 20-month low against the U.S. dollar on Monday, taking its cue from a slowdown in the pace of economic growth in New Zealand and expectations that the next central bank move will be to lower rates.

REUTERS VJ RAI0633