NEW YORK - The dollar index held at lower levels on Friday after Federal Reserve Chair Jerome Powell expressed concerns that inflation could become entrenched, despite volatility that initially sent the greenback bouncing off session lows, and then falling again.

Powell struck a hawkish tone, as was widely expected, and said that the Fed’s overarching focus is to bring price pressures back down to the Fed’s target of 2%. He added that the size of September’s expected interest rate increase will depend on data that has come out since the Fed’s July meeting.

The dollar index was last at 107.72, down 0.68% on the day. The euro gained 1.02% to $1.0073. The dollar dipped earlier on Friday after data showed that U.S. consumer spending barely rose in July as a drop in gasoline prices weighed on receipts at service stations, and that monthly inflation slowed down considerably.

Atlanta Fed President Raphael Bostic said earlier on Friday that with data showing U.S. inflation is slowing, he is "leaning" toward supporting a 50 basis point rate hike in September on the way toward getting the policy rate to 3.5%-3.75% by year end.

Fed funds futures traders are pricing in a 55% chance of a Fed rate hike of another 75 basis points at its September meeting, compared with 45% before Powell’s comments, and a 45% probability of a 50 basis points increase.

The euro also hit a session high against the greenback earlier on Friday after Reuters reported that some European Central Bank policymakers want to discuss a 75 basis points interest rate hike at the September policy meeting, even if recession risks loom, as the inflation outlook is deteriorating. 

(Editing by Chizu Nomiyama)