* Dollar supported by US yields, monetary policy and trade dispute
* Pound hovers at 7-month low, BoE meeting awaited for cues
* Kiwi slips to 6-month trough on NZ’s lacklustre GDP data
* Swiss franc and Norwegian crown rally after policy meetings
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, June 21 (Reuters) - The dollar rose to a fresh 11-month high and the euro hit another low on Thursday as investors increased their bets on a prolonged period of monetary policy divergence between the U.S. and European central banks.
The euro also weakened on Thursday to its lowest since July, 2017 after the Italian government appointed two eurosceptics to head key finance committees, reigniting worries about anti-euro voices in the euro zone’s third-largest economy.
Concerns over an escalation in a U.S.-China trade conflict, underlined by comments from top central bankers on Wednesday, have also boosted the dollar as traders reckon a more serious dispute would be inflationary for the U.S. economy, forcing the Federal Reserve to tighten rates further.
“We are really seeing divergence in monetary policy in the euro zone and the U.S. for many months to come,” said Esther Reichelt, a currencies analyst at Commerzbank in Frankfurt.
“This general sentiment has not been fully priced into the market.”
The dollar index against a group of six major currencies rose half a percent to 95.483, its highest since mid-July 2017.
Buoying the greenback, long-term Treasury yields also bounced back from three-week lows. Those yields were propped up by remarks from Fed Chairman Jerome Powell, who said on Wednesday that the U.S. central bank should continue with a gradual pace of rate increases.
The euro fell more than half a percent to $1.1508, below its recent low of $1.1531 hit last week.
“Sometimes you have to trade and ask questions later. A spike in Italian yields would be reason enough to sell euros,” said Neil Jones, head of hedge fund FX sales at Mizuho.
The dollar rose 0.2 percent to 110.6 yen, moving further ahead from a one-week low of 109.55 struck on Tuesday.
Elsewhere the pound hit a new 7-month low ahead of the Bank of England policy meeting, at which the central bank is expected to keep rates on hold.
The Swiss National Bank kept its negative interest rate on hold on Thursday, as expected, but the franc rallied against the euro as some traders saw a slightly more hawkish tone from the central bank.
Norway’s central bank also kept rates on hold but said it was on track to raise rates in September - sending the Norwegian crown to fresh eight month highs.
The New Zealand dollar retreated to a six-month low of $0.6838 after domestic data that showed slowing first quarter economic growth boosted expectations that the central bank would keep interest rates low.
The Mexican peso climbed more than 0.8 percent overnight, helped by expectations that the country’s central bank will raise interest rates on Thursday. It later gave those gains and fell.
The peso had extended a rebound from 1-1/2-year low it hit last week when it was dented by a broad dollar rally, a deadlock in talks around the NAFTA free trade deal and nervousness ahead of Mexico’s July 1 presidential election.
Brazil’s real was flat despite the country’s central bank refraining from tightening monetary policy again on Wednesday.
The real has lost 5 percent this month and brushed its lowest level since March 2016.
The tariff feud between China and the United States has added to woes for emerging markets, already under pressure due to steadily rising U.S. interest rates. (Editing by David Evans/Keith Weir)