Markets | Sun Mar 29, 2015 11:28pm EDT

The dollar inched higher versus the yen and euro on Monday after the head of the U.S. Federal Reserve underscored the view that the Fed is likely to start raising interest rates gradually later this year.

The dollar edged up 0.1 percent to 119.24 yen JPY=. It has fallen more than 2 percent from a near eight-year peak of 122.04 set early this month.

The euro slipped 0.2 percent to $1.0873 EUR=, having in the last two weeks pulled up from a 12-year trough of $1.0457.

In a highly anticipated speech on Friday, Fed Chair Janet Yellen outlined the case for a 'gradualist approach' to rate hikes, in comments mirroring those at the post-FOMC meeting on March 18.

She said policy tightening could "speed up, slow down, pause, or even reverse course" depending on actual and expected developments in the economy.

"Yellen went to great length to detail why rate hikes would not be rushed and ultimately may not reach levels previously considered to be 'normal'," said Ray Attrill, global co-head of FX strategy at National Australia Bank.

"Our take is that while rates may rise sooner and faster than current market pricing, they are more likely to undershoot than overshoot the Fed's latest median 'dot point' trajectory."

The diverging interest rate pathways between the Fed and most of the developed world meant that the dollar should in general stay supported.

"Our view of the U.S. dollar remains broadly positive and we have always viewed that the correction of the past two weeks in the U.S. dollar is temporary," said Heng Koon How, senior FX strategist for private banking and wealth management at Credit Suisse in Singapore.

"We expect the Fed to start hiking rates possibly by the September FOMC and the process will likely be gradual," he said, adding that the dollar would probably stay strong heading into the start of the Fed's policy tightening cycle.

A key event for the dollar this week is U.S. jobs data on Friday.

Commodity currencies edged lower, partly unsettled by further falls in oil and iron ore prices last Friday, when oil prices slid 5 percent. On Monday, benchmark Brent crude oil futures LCOc1 slipped 0.5 percent to $56.13 a barrel.

The Aussie eased 0.3 percent to $0.7729 AUD=D4, continuing to retreat from a two-month peak of $0.7939 set a week ago. It was nearing a six-year trough of $0.7561 plumbed early this month.