* Dollar index inches away from 7-month highs
* Euro edges away from lows as ECB awaited
* Aussie firms as RBA chief expresses comfort with FX levels
TOKYO, Oct 18 (Reuters) - The dollar took a breather from its recent gains on Tuesday, edging away from seven-month highs against a currency basket as investors took stock of U.S. interest rate expectations in coming months.
The dollar index, which tracks the greenback against six major rivals, slipped 0.2 percent to 97.711, after rising as high as 98.169 in the previous session, its highest since March 10.
Against the yen, the dollar was down slightly on the day at 103.89.
“Rangebound trading continues, with the 104 level heavy for the dollar-yen,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. “It’s just short-term guys, playing in the market.”
U.S. interest rates remain a key focus of the markets, he said, with a December rate hike still anticipated.
However, a Fed rate increase this year is still far from a done deal.
Fed Vice Chairman Stanley Fischer said on Monday that economic stability could be threatened by low interest rates, but it was “not that simple” for the Fed to hike.
However, Boston Fed President Eric Rosengren told Reuters the current levels of jobs and inflation support the case for a rate increase soon.
A suggestion by Fed Chair Janet Yellen on Friday that the central bank may allow inflation to exceed its 2 percent target pushed U.S. bond yields to four-month highs and gave the dollar a lift.
The Bank of Japan will meet later this month and issue fresh quarterly growth and inflation forecasts at the end of its Oct. 31-Nov. 1 meeting, but it is seen holding off on expanding stimulus after having just revamped its policy framework.
“The BOJ is not expected to move in the next two or three months, so I don’t think their movement is going to be a topic soon,” said IHS Markit’s principal economist in Tokyo, Harumi Taguchi.
Japanese companies have little faith in the central bank’s latest shift in monetary policy, saying it won’t generate long-desired inflation, spur further business investment or have an impact on the economy, according to the findings of the Reuters Corporate Survey released on Tuesday.
The euro added 0.2 percent to $1.1017, moving away from a nearly three-month low of $1.0962 hit on Monday, as investors looked ahead to the European Central Bank’s policy meeting later this week.
The ECB may discuss technical changes that would allow it to extend its 1.7 trillion-euro of asset purchases beyond the March 2017 end-date, at a time when talk of potentially “tapering” its scheme has put markets on edge.
Against the yen, the euro climbed 0.2 percent to 114.47 .
Recently battered sterling added 0.3 percent to $1.2220 .
Prime Minister Theresa May is keen to listen to “differing views” among her team of top ministers to make sure Britain is fully prepared for its negotiation to leave the European Union, her spokeswoman said on Monday.
Fears that May is taking Britain towards a “hard Brexit,” which could see it leave the EU’s single market in order to impose controls on immigration, have pressured sterling.
The weaker currency has sent inflation expectations soaring, driving investors to trim bets on Bank of England stimulus measures this year.
The Australian dollar gained 0.5 percent to $0.7665, getting a tailwind from its U.S. counterpart’s weakness and from Reserve Bank of Australia Governor Philip Lowe, who said he was comfortable with the current exchange rate.
Earlier in the day, Australia’s central bank said coming data on inflation and employment will be critical for interest rates at its next meeting on Nov. 1, opening the door to a possible easing in policy. But market participants believe chances of an easing are remote. (Reporting by Tokyo markets team; Editing by Shri Navaratnam and Kim Coghill)