By Saumya Vaishampayan, MarketWatch

NEW YORK (MarketWatch) -- The dollar rebounded Friday, but was on track to post weekly losses against most major rivals after the Fed signaled this week it was likely to keep interest rates low for a while.

The ICE dollar index (DXY), a measure of the greenback's strength against six other currencies, rose to 80.431 from 80.327 late Thursday. For the week, the index has edged back 0.2%. The WSJ Dollar Index , which pits the dollar against a wider basket of rivals, rose to 73.16 from 73.05.

Fed Chairwoman Janet Yellen on Wednesday dismissed data showing higher-than-expected consumer-price inflation as "noisy," emphasizing that there is no "mechanical formula" for interest-rate hikes. Herremarks, which came after the central bank decided to cut its monthly bond purchases by another $10 billion, suggested that rates could remain at subdued levels until the middle of next year. Higher interest rates are likely to bolster the U.S. dollar because more foreign investors will be compelled to buy greenbacks in order to obtain higher-yielding U.S. assets.

"The dollar is likely to decline as Fed dovishness boosts risk appetite and encourages carry trades," Citi analysts wrote in a note Friday. A carry trade is the practice of borrowing lower-yielding currencies to fund bets in higher yielding currencies and such trades tend to benefit in periods of low volatility.

The pound (GBPUSD) inched down to $1.7029 from $1.7038 late Thursday. For the week, the pound is set to gain 0.4% against the dollar, supported by the diverging outlook for monetary policy. Bank of England Gov. Mark Carney said last week that U.K. rates could rise soonerthan the markets expect.

In other action, the euro (EURUSD) fell to $1.3576 from $1.3604, but remained on track for a 0.3% weekly gain. The dollar (USDJPY) rose to Yen102.13 from Yen101.96 late Thursday, on track to eke out a weekly gain of 0.1%.

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(END) Dow Jones Newswires

June 20, 2014 09:48 ET (13:48 GMT)

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