The dollar inched higher on Thursday, extending this week's gains as investors concluded that U.S. interest rates could keep rising regardless of the damage to the economy from Hurricane Katrina. Analysts said that comments from Chicago Federal Reserve President Michael Moskow that U.S. rates must contain inflationary pressures had helped to instill some market confidence the central bank would raise rates when it meets on September 20. The dollar hit a three-month low against the euro on Friday and its lowest level in two and a half months versus the yen on Monday amid concerns the Fed, after lifting rates 10 straight times, might pause to assess the hurricane's economic impact. "(Traders) realize that markets may have oversold the currency and pushed U.S. Treasury yields too low on worries that the Katrina impact could hold the Fed back from lifting rates," said Kikuko Takeda, currency analyst at Bank of Tokyo-Mitsubishi. The dollar bought around 110.25 yen (JPY=), up a tad from the level in late New York trade. The euro was little changed at $1.2425 (EUR) and up 0.2 percent at 136.90 yen (EURJPY=). Some market players said the recent buying back of the dollar did not necessarily point to a longer-term bullish trend for the U.S. currency. Analysts said that Moskow's comment that higher inflationary risks would require the Fed to "respond accordingly in order to restore price stability" was a signal that, even in Katrina's aftermath, the central bank remained focused on pressures from inflation. Last week, Philadelphia Fed President Anthony Santomero said the effects of Katrina would not derail the U.S. expansion and emphasised the central bank needed to keep inflation under wraps. San Francisco Fed President Janet Yellen speaks at 1930 GMT. "Judging from recent remarks, Fed officials seem to see the impact from Katrina as one-off and not detrimental to its policy of measured increases in interest rates," said Kaoru Kondo, chief forex analyst at Fisco. The Wall Street Journal reported late Wednesday that the Fed was still considering a pause on September 20, but officials were worried about inflationary pressures from surging energy prices after Katrina.