* Euro set for fourth month of gains
* Investor adjust to Fed inflation policy shift
* Yen steadies as investors bet Abenomics survives
* China services growth drives yuan to 14-month top
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Julien Ponthus
LONDON, Aug 31 (Reuters) - The dollar was set for a fourth
straight month of losses on Monday after a U.S. Federal Reserve
policy shift on inflation, while the euro was poised to post a
fourth month of gains, taking both currencies to levels last
seen in 2018.
Investors are adjusting to a speech last Thursday in which
Federal Reserve Chair Jerome Powell outlined an accommodative
policy change which is believed could result in inflation moving
slightly higher and interest rates staying lower for longer.
"Even if U.S. central bankers are likely to be pleased about
the interpretation of their measures, it is not good news for
the dollar", Commerzbank analysts commented.
"If one expects the domestic purchasing power of the dollar
to be eroded more quickly (as that is what inflation is) it is
difficult to assume that it will maintain its purchasing power
on the FX market in the long run", they argued.
"That is why EUR-USD is trading above 1.19, with the dollar
index (DXY) trading below 92.50", they concluded.
Against a basket of currencies the dollar rose 0.1%
higher to 92.356 in early trading in Europe and is down 1.2% for
the month.
If sustained that would be its worst August in five years
and make for the longest run of monthly losses since the summer
of 2017.
The euro was steady at $1.1903 and on track for a
1% monthly gain, which would be its fourth straight month of
increases.
With most of London's traders off on a banking holiday,
attention now turns to a handful of Federal Reserve officials
due to speak through the week, beginning with Richard Clarida at
1300 GMT Monday, as they put more flesh on the bank's new policy
framework.
Eurozone inflation data on Tuesday and U.S. payrolls on
Friday will also be closely watched.
Earlier the yen steadied on the view that Japan's next
leader will stay the course on the 'Abenomics' economic revival
programme.
The yen eased by about 0.4% in Asia to 105.77 per
dollar, having climbed as far as 104.195 on Friday in the wake
of Shinzo Abe's resignation as prime minister for health
reasons.
Elsewhere trade was choppy as the boost to Asian currencies
from a solid expansion in China's service sector had begun to
fade a bit.
The Australian dollar was down 0.2% after touching
a 21-month peak of $0.7381 but remained set to post a fifth
straight monthly rise, its best streak in over a decade and a
34% gain from March's trough.
The New Zealand dollar made a post-COVID high of
$0.6749 but also slightly retreated 0.2% thereafter.
China's yuan hit a 14-month peak of 6.844 to the dollar in
offshore trade as investors cheer the services growth
rather than fretting about a stalled rebound in manufacturing.
It later abandoned some gains and was last at 6.8556.
(Reporting by Julien Ponthus, Editing by William Maclean)