By Karen Brettell

NEW YORK The dollar bounced off two-week lows on Friday as investors awaited inflation data and the Federal Reserve's interest rate decision next week for any new clues on how high the U.S. central bank is likely to hike rates.

The Fed is expected to hold rates steady at its June 13-14 meeting, but is likely to remain hawkish and indicate a probable hike in July as inflation stays above its 2% target.

"They still think they need to do more, and also I would suspect they will continue to discourage expectations of policy easing," said Vassili Serebriakov, an FX strategist at UBS in New York.

The Fed is expected to revise higher its "dot plot" of policymakers' rate expectations and inflation projections, "so in that sense, I think the Fed will remain hawkish," Serebriakov said.

Data due on Tuesday is expected to show headline inflation rose at an annual rate of 4.1% in May, while core prices gained 5.3%.

The euro was last down 0.30% against the dollar at $1.0749. The greenback gained 0.34% at 139.40 yen.

The dollar index, which measures the currency against six major peers, rose 0.22% to 103.53.

The greenback is largely rangebound as investors wait for clearer signs of whether the economy will remain strong and inflation elevated, or if it is headed towards a contraction.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits surged to the highest in more than 1-1/2 years last week.

Last Friday, May jobs data showed employers added 339,000 jobs, more than expected, but unemployment rose to a seven-month high of 3.7%.

"This jump put jobless claims close to a two-year high and has been read by markets as a clear sign of coming weakness in the U.S. economy and a more-hesitant-to-hike Fed," CaxtonFX strategist David Stritch said.

The European Central Bank and Bank of Japan are also due to meet next week. The ECB is expected to raise euro zone rates by 25 bps to 3.50% on Thursday, while the BOJ is likely to leave rates unchanged after its two-day meeting on Friday.

The Bank of Canada and Reserve Bank of Australia jolted markets earlier this week by raising interest rates to tackle stubborn inflation.

The Norwegian krone gained sharply after data showed Norway's core inflation rate jumped to a record high in May. Core inflation, which strips out changing energy prices and taxes, rose 6.7% year on year, up from 6.3% in April and exceeding the 6.2% average forecast among analysts polled by Reuters.

The greenback fell 1.34% to 10.76 krone, the lowest since May 17.

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Currency bid prices at 3:00PM (1900 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.5300 103.3200 +0.22% 0.039% +103.5800 +103.3100

Euro/Dollar $1.0749 $1.0782 -0.30% +0.33% +$1.0786 +$1.0744

Dollar/Yen 139.3950 138.9300 +0.34% +6.32% +139.7200 +138.7650

Euro/Yen 149.83 149.78 +0.03% +6.79% +150.4300 +149.6500

Dollar/Swiss 0.9031 0.8992 +0.44% -2.33% +0.9032 +0.8985

Sterling/Dollar $1.2576 $1.2558 +0.13% +3.97% +$1.2590 +$1.2536

Dollar/Canadian 1.3351 1.3359 -0.06% -1.47% +1.3371 +1.3313

Aussie/Dollar $0.6740 $0.6716 +0.34% -1.14% +$0.6751 +$0.6694

Euro/Swiss 0.9708 0.9692 +0.17% -1.89% +0.9718 +0.9685

Euro/Sterling 0.8546 0.8584 -0.44% -3.37% +0.8590 +0.8542

NZ $0.6125 $0.6096 +0.48% -3.54% +$0.6139 +$0.6087

Dollar/Dollar

Dollar/Norway 10.7600 10.9020 -1.34% +9.60% +10.9110 +10.7460

Euro/Norway 11.5688 11.7314 -1.39% +10.25% +11.7690 +11.5470

Dollar/Sweden 10.8234 10.7937 -0.11% +3.99% +10.8593 +10.7828

Euro/Sweden 11.6305 11.6428 -0.11% +4.31% +11.6877 +11.6232

(Additional reporting by Amanda Cooper in London; Editing by Jan Harvey and Richard Chang)