Shutterstock photo* Powell drives expectations of 4 rate hikes this year
* Euro hits 7-week low vs dollar, 6-month trough vs yen
* Soft euro zone manufacturing PMI nudges euro lower
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, March 1 (Reuters) - The euro slipped to a seven-weeklow on Thursday, as investors bet that monetary policies willdiverge in the euro zone, where interest rates look set to stayat record lows throughout 2018, and the United States, where asmany as four hikes are expected.
The dollar strengthened across the board, hitting a six-weekhigh against a basket of major currencies .DXY after JeromePowell struck an upbeat note on the U.S. economy on Wednesdayduring his first public testimony as Federal Reserve chief.
In contrast, soft inflation data in the euro zone onWednesday dented expectations that the European Central Bank(ECB) will dial back its stimulus this year, driving the euro toa six-month trough against the yen in Asian trading on Thursday.
Data showing the currency bloc's manufacturing boom slowed alittle further last month added to the downbeat mood, helpingsend the euro to as low as $1.2162EUR= , its weakest sinceJan. 12. urn:newsml:reuters.com:*:nL9N1LH02C
"At the start of the year we had a lot of excitement aboutthe strength of growth, and we had a lot of speculation that theECB was going to taper more aggressively -- people were eventalking about hikes at the end of the year," Rabobank currencystrategist Jane Foley said.
"A lot of that has just fallen off the scene and there's abit more of a pragmatic outlook for what the ECB is likely todo, which is maybe a rate hike in 2019, which is still some wayaway. If we layer that on top of the U.S. story, there is acontrast," she added.
The dollar index climbed to 90.868, with Powell's optimismon the economy in public testimony to Congress suggesting theU.S. central bank is going to raise interest rates one more timethan the three hikes markets had expected.
"Hawkish comments from Powell have fuelled marketspeculation of the Federal Reserve raising U.S. interest ratesfour times this year -- ultimately supporting the dollar," saidLukman Otunuga, Research Analyst at FXTM.
"Market expectations of higher U.S. rates could intensifyfurther if the new Fed head doubles down on hawkish comments."
Powell will continue his testimony later in the day.
The dollar index is still down 1.5 percent this year, doggedby suspicions that the Trump administration prefers a weakerdollar to mend its bulging trade deficit. Worries that Trump'sbig tax cuts and spending plans may boost fiscal deficits to theextent that they undermine confidence in U.S. debt have alsodragged on the greenback.
The Australian dollar hit a two-month trough versus thedollar and a nine-month low versus the yen after data onAustralian business investment missed forecasts.
The Aussie traded 0.5 percent down at $0.7725, havingbriefly fallen to as low as $0.7717AUD=D4 . (Reporting by Jemima KellyEditing by Catherine Evans)
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