By Amanda Cooper

LONDON (Reuters) -The dollar headed for its largest weekly fall since mid-January on Friday as the view took hold among investors that the Federal Reserve will forgo an interest rate hike this month, which would diminish the greenback's appeal to non-U.S. buyers.

The U.S. Senate's passage of a bill to suspend the debt ceiling and avert a disastrous default also removed a pillar of support for the dollar, which had paradoxically been a key beneficiary because of its safe-haven status.

The Australian dollar surged after an increase in the minimum wage stoked bets for the central bank to raise rates again next week.

The dollar index, which measures the U.S. currency against six others, has dropped nearly 0.8% this week, its biggest weekly loss since mid-January. It was last down 0.1%.

"With the debt ceiling in the rear-view mirror, focus is very much back on central banks and economic data," City Index markets strategist Fiona Cincotta said.

"The problem is we’ve really had quite mixed messages so, yes, more recently we had two officials mentioning a skip in June, but that doesn’t rule out a hike later in the summer, or even in July, so I think that expectation could still keep the dollar supported," she said.

"Also, let's not forget inflation is still high."

Philadelphia Fed President Patrick Harker said on Thursday "it's time to at least hit the stop button for one meeting and see how it goes", referring to the June 13-14 meeting.

A day earlier, Fed Governor Philip Jefferson said "skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming".

Some softness in U.S. manufacturing data overnight supported the case for a pause, although jobs figures continue to print hot, putting even more focus than usual on the monthly non-farm payrolls report later in the day.

Money markets are pricing in a roughly 29% chance of a hike, down from near 70% earlier in the week.

The dollar edged into positive territory against the yen, having logged its longest streak of daily losses against the Japanese currency since last November, with four days of declines. The dollar was last up 0.1% at 138.89 yen .

The pair tends to track U.S. long-term Treasury yields, which were at 3.61% after falling to their lowest since Nov. 18 overnight.

The euro was flat at $1.0769, after reaching a one-week high of $1.07685 on Thursday, when European Central Bank President Christine Lagarde said further policy tightening was necessary.

Meanwhile, the U.S. Senate passed a bill to lift the government's $31.4 trillion debt ceiling on Thursday, readying it for President Joe Biden to sign ahead of Monday's deadline.

"This clears the last residual bound to everything getting done and dusted by Monday's X-date," said Ray Attrill, head of foreign-exchange strategy at National Australia Bank.

"At the margin, it plays with the grain of the more risk positive view in the market, which is proving to be U.S. dollar negative."

The Aussie rose by as much as 0.68% to $0.662, its strongest since May 24. The primary driver was an announcement by Australia's independent wage-setting body that it would raise the minimum wage by 5.75% from July 1.

Traders currently place a 67% chance the central bank will raise rates by 25 bps. Even if a hike doesn't happen next week, markets expect one by autumn.

"This has seen market pricing for the RBA lift materially," said NAB's Attrill. "That's why Aussie is the outperformer today."

(Additional reporting by Kevin Buckland in Tokyo; editing by Sam Holmes and Mark Heinrich)