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FOREX-Dollar pauses as traders weigh Fed's dovish stance

* Graphic: World FX rates tmsnrt.rs/2RBWI5E

LONDON, March 19 (Reuters) - The dollar held its ground against other major currencies on Friday as investors digested the U.S. Federal Reserve’s pledge this week to look past inflation and keep interest rates low.

The Fed’s loose policy stance on Wednesday triggered a dollar sell-off and pushed up 10-year Treasury yields to 14-month highs.

But the greenback’s losses have since reversed, with the dollar index last up 0.1% on the day and on track for around a quarter of a percent gain over the week.

The benchmark U.S. 10-year yield eased on Friday to 1.6891%, after hitting a more-than-one-year peak of 1.754% in the previous session.

The Fed pledged this week to press on with aggressive monetary stimulus, saying a near-term spike in inflation would prove temporary amid projections for the strongest U.S economic growth in nearly 40 years.

“The disappointment about the Fed’s unchanged dovish approach only put the dollar under pressure momentarily,” currency analysts at Commerzbank said in a note.

“Clearly, the majority of market participants considers the Fed’s cautious approach to be justified and assumes that this supports the economic recovery. That improves the longer-term economic outlook and therefore justifies higher interest rates long-term as well as a stronger dollar.”

The euro dipped 0.2%, giving up early gains versus the dollar amid concerns about further coronavirus lockdowns in Europe, after France imposed a new four-week lockdown from Friday in 16 regions badly hit by the health crisis.

The yen was broadly flat after the Bank of Japan widened its target band for the benchmark yield in a decision that was in line with market expectations.

“There’s no reason for dollar-yen to react to the latest results of the BOJ assessment because it’s almost in line with what the media reported in advance,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“For dollar-yen, U.S. Treasury yield change is a much more important driver than the JGB yield change.”

In the cryptocurrency market, bitcoin traded at around $58,000 after briefly topping $60,000 again overnight.

Reporting by Iain Withers, additional reporting by Kevin Buckland in Tokyo and Sagarika Jaisinghani in Bengaluru; Editing by Kim Coghill

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