No love for dollar ahead of central bank speeches

By Patrick Graham

LONDON (Reuters) - Financial investors' lack of faith in another rise in U.S. interest rates this year kept the dollar pinned back on Monday at the start of a week packed with speeches from Federal Reserve and other senior central bank officials.

A small dip for the yen early in European trade was driven by mildly improved appetite for risk among investors and helped keep the dollar index roughly flat on the day as Britain's pound inched higher.

Sterling has recovered 1.5 cents from lows hit in the past 10 days due to uncertainty over the makeup of the next government, helped by a shift by several Bank of England policymakers towards raising interest rates this year.

But markets so far are loathe to buy the Fed's own line that it will raise U.S. rates once more before the end of 2017 and another three times next year. That has kept Treasury yields at historically low levels and halted any progress for the greenback.

It traded 0.1 percent weaker at $1.1203 per euro and 0.2 percent stronger at 111.47 yen by 0730 GMT.

"The market continues to call the Fed's bluff on its intentions to change rates. I don't think anything (Fed chair) Janet Yellen can say this week will change that," said Stephen Gallo, head of European FX strategy with Bank of Montreal.

"We were saying buy dips in cable and euro (against the dollar) last week. We still look for the same this week."

Yellen makes a hotly awaited speech in Europe on Tuesday. She is preceded by European Central Bank chief Mario Draghi on Monday, watched for signs he is ready to let the ECB move more forcibly towards a reduction in emergency stimulus for the economy this year that should support the euro.

The dollar index hit a one-month peak of 97.871 earlier last week, supported by expectations that the Fed, fresh from a mid-June rate hike, would tighten policy again as early as September.

But such expectations ebbed again as another round of U.S. economic indicators fell short of forecasts; market pricing puts the chances of a hike by the end of December at just one in three.

"The main reason behind the weakness of the dollar, which has lost its upward momentum since the Fed rate hike, is U.S. yields stuck at low altitude," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"Yields appear to better reflect U.S. fundamentals relative to equities, and in focus this week are political developments and the various indicators due for release."

U.S. data due this week include the June consumer confidence indicator, pending home sales, crude oil inventories, revised first quarter GDP and the PCE price index.

On the political front, the U.S. Senate hopes to vote on a healthcare bill this week to replace Obamacare. But with as many as five Republican senators opposing the bill, getting a vote by the end of this week could be difficult.

(Additional reporting by Shinichi Saoshiro in TOKYO; Editing by Andrew Heavens)