* Dollar inches higher ahead of central bank speeches
* Yellen eyed for signs on balance sheet reduction
* Will ECB’s Draghi seek to talk down euro?
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Aug 25 (Reuters) - The dollar gained more ground against the yen and the euro on Friday as traders bet Federal Reserve chief Janet Yellen would promise to push forward with plans for tighter monetary policy.
She was to speak at the meeting of central bankers in Jackson Hole, Wyoming.
The debate in Congress over raising the government’s debt ceiling has begun to loom over the U.S. currency, with lawmakers expected to have just two weeks to agree a deal when they return in September.
But with trade thinned out by the last weeks of the European holiday season — and a bank holiday weekend in the world’s main currency trading hub London — expectations for more signs of a reduction of the Fed’s balance sheet was keeping the greenback higher.
“Given the vibes that we have been getting from the Fed I think it is becoming clear that they are intent on pursuing this balance sheet reduction next month,” said Alvin Tan, a strategist with Societe Generale in London.
“The market is effectively expecting an announcement in September so (if Yellen promises one) it will not be a surprise. (But) the kneejerk could help push U.S. bond yields higher and obviously help the dollar.”
Yellen is due to give a speech at 1400 GMT, followed by European Central Bank chief Mario Draghi at 1900 GMT.
By 0730, the dollar was 0.13 percent higher against the euro at $1.1784. It gained around 0.1 percent to 109.64 yen.
The dollar was poised to end 0.3 percent stronger against the yen on the week, having slipped to as low as 108.635 yen on geopolitical tensions stemming from the Korean Peninsula.
Investors’ focus for the time being has shifted from geopolitics and political turmoil in Washington to monetary policy.
Price data from Japan highlighted what could be a major topic of discussion at the central bankers’ gathering: why are inflationary pressures remaining so stubbornly weak despite a seemingly synchronised global economic recovery?
Japan’s core consumer prices inched up for a seventh straight month in July from a year earlier, but the gain was a tepid 0.5 percent and driven largely by higher fuel bills. The yen showed little reaction.
The ECB’s job has been made harder by a stronger euro, up nearly 14 percent against the dollar this year, and traders are still wary of any comment on the currency’s strength from Draghi.
The dollar index against a basket of six major currencies was also up 0.1 percent at 93.382 after nudging up 0.15 percent overnight on the back of a rise in U.S. Treasury yields.
“If anything, Draghi may deliver a rather dovish message that still leaves the door open to tapering at the end of the year while carefully managing the euro lower,” said Oanda analyst Craig Erlam.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Writing by Patrick Graham Editing by Jeremy Gaunt.)