The dollar slipped to two-week lows against the euro and the yen yesterday after a Federal Reserve official raised doubts a day earlier over how quickly the US central bank would raise interest rates.

Fed Governor Ben Bernanke said the Fed should be able to increase interest rates at a gradual pace, triggering a shift in sentiment by some traders, who had been looking for the Fed to raise rates aggressively to cool the fast-growing US economy.

Prospects for higher US rates have been supporting the dollar recently against major currencies. But with expected returns on US deposits looking less appealing, investors bailed out of long dollar positions, pushing the US currency lower across the board.

"I think what you're seeing is that dollar weakness is a bit more broad-based than we'd seen earlier in the week," said Daniel Katzive, foreign exchange strategist with UBS in Stamford, Connecticut. "If anything, the Fed speakers have supported the idea that tightening is going to be measured."

He said the dollar is poised for additional light losses, unless a new perception creeps into the market that the Fed is gearing up for a more aggressive tightening cycle. Many analysts are looking for the Fed to raise interest rates in June.

In early New York trade, the euro was up at $1.2060. The dollar was down at 111.80 yen as the yen gained strength from a rise in the Nikkei stock average.

Sterling was up at $1.7929 after scoring a two-week high above $1.7950 as strong mortgage lending data bolstered market expectations that British interest rates would rise several more times over the course of the year.

British mortgage lending rose £6.4 billion in April, its fastest pace since the British Bankers' Association records began in 1997.

Surging oil prices, which held near record highs, have weighed on growth-sensitive Asian and high-yielding currencies, but Tokyo's Nikkei stock average closed up nearly two per cent yesterday, boosting the yen across the board.

"Higher oil prices hurt equities and are bad for the Asian economy but the Nikkei actually sustained this week's gains," said Mansoor Mohi-uddin, chief currency strategist at UBS, "The Nikkei and dollar/yen are highly correlated at the moment."