* Dollar index firmer, edges up from Thursday’s 2-week low
* Yen takes breather after previous day’s rally
* All eyes still on Fed meeting next week
By Masayuki Kitano
SINGAPORE, Sept 13 (Reuters) - The dollar inched up versus a basket of currencies on Friday but was still lower for the week, having been dented by growing doubts that the Federal Reserve will scale back monetary stimulus in any significant manner next week.
The dollar index edged up 0.1 percent to 81.594, having pulled up from a two-week low of 81.356 set on Thursday. At its current levels, the dollar index was still down about 0.7 percent for the week.
The yen took a breather after having rallied on Thursday, when investors unwound yen-bearish positions, particularly versus the Australian dollar, in the wake of disappointing Australian jobs data.
The dollar inched up 0.1 percent to 99.60 yen. The dollar rose to as high as 99.85 yen earlier on Friday, up from Thursday’s intraday low of 99.00 yen.
“It just looks like some short-covering,” said a trader for a European bank in Tokyo, referring to the dollar’s earlier rise versus the yen.
Some market players cited the Japanese government’s upgrade of its economic assessment in September as a supportive factor for the dollar versus the yen.
The government raised its view on the economy for the seventh time this year because of rising capital expenditure, in another sign Prime Minister Shinzo Abe’s reflationary policies are boosting growth.
“It seems a step away from deflation. In my view, anything that seems to edge away from deflation pressures is more negative for the yen,” said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
Traders said the greenback also gained some support as U.S. Treasury yields nudged higher. Then 10-year U.S. Treasury yield last stood near 2.931 percent, up from Thursday’s U.S. close of 2.905 percent.
The greenback was broadly firmer, with the euro easing 0.1 percent to $1.3283.
The Australian dollar eased 0.2 percent to $0.9245. That was down from Thursday’s three-month high of $0.9355, which had been set just before the weak Australian employment figures triggered a drop in the Aussie dollar.
Traders said the main focus is still whether the Federal Reserve will begin to scale back stimulus at its Sept. 17-18 policy meeting and by how much.
Following last Friday’s uninspiring U.S. non-farm payrolls data, markets are less worried about the risk of any major pullback from the Fed.
Indeed, many traders and analysts expect the Fed to reduce its $85 billion monthly bond-buying programme by a modest $10 billion.
A much larger number would be seen as hawkish and undoubtedly provide a boost to the dollar and put emerging market currencies under renewed pressure. Conversely, any delay in tapering will be interpreted as dovish, traders said.
Many emerging market currencies, hit hard by an outflow of funds, have retraced some of their deep losses in recent sessions.
“This is likely the result of profit taking, marginally better China data and investors becoming more sanguine over risk events next week,” said Oliver Harvey, a London-based analyst at Deutsche Bank.
“From here on in, markets should discriminate more between currencies, particularly if risk remains buoyant,” Harvey said, adding the Indonesian rupiah, Turkish lira and South African rand remained vulnerable.