By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The dollar was steady on Monday, recovering after Friday's losses despite a robust U.S. jobs report, as investors looked to this week's Federal Reserve's policy meeting in which it is expected to raise rates by a quarter percentage point.
An interest rate rise would boost the dollar as it enhances the appeal of U.S. assets.
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"Expectations have solidified over the Fed raising U.S. interest rates this week following February's solid NFP (non-farm payrolls) figure," said UK-based Lukman Otunuga, research analyst at online currency broker FXTM.
"If the economic projections of the FOMC members are bullish and suggest further U.S. rate hikes this year then the greenback (dollar index) may charge back above 102.00 in the short to medium term."
The Federal Open Market Committee will hold a two-day monetary policy meeting, which starts on Tuesday. Fed funds futures on Monday have priced in a nearly 90-percent chance the Fed will hike rates on Wednesday.
Sterling, which has been one of the worst performers against the dollar the last two weeks, rose half a percent after Scotland demanded the right to hold a new referendum on independence.
In afternoon trading, the dollar was slightly stronger against a basket of currencies at 101.33 <.DXY> and was marginally up against the euro. The single European currency was last at $1.0658, down 0.1 percent.
The dollar index earlier fell to a two-week low of 101.01.
Friday's solid jobs number cemented the case for a rise in U.S. interest rates this week that will long predate any rise in European equivalents.
Britain, meanwhile, is expected to formally file its request to leave the European Union, but was given another curve ball from Scottish First Minister Nicola Sturgeon's call for a new referendum on independence.
But Sturgeon's time frame for the referendum, which at the earliest could happen by the end of next year when Brexit talks likely to be end, partially eased concerns about the issue adding to more political risk this year.
Sterling, as a result, held gains against the dollar rising 0.5 percent to $1.2231 <GBP=>.
Against the yen, the dollar was little changed at 114.77 yen <JPY=>.
The Bank of Japan will announce its own policy decision on Thursday, with the market not expecting any significant change to the BoJ's generally dovish policies.
But any indication of further reduction of the BoJ's quantitative easing program would be positive for the yen, said James Chen, head of research at Forex.com in Bedminster, New Jersey.
(Reporting by Gertrude Chavez-Dreyfuss; additional reporting by Patrick Graham in London; Editing by Lisa Shumaker)