LONDON- The euro weakened on Friday and was set for a weekly decline after European Central Bank President Christine Lagarde warned raising rates now could only hurt the economy.

In the meantime, the U.S. dollar index =USD was on track for weekly gains after U.S. inflation surged to a 40-year peak and comments from St. Louis Federal Reserve President James Bullard unleashed a wave of bets on aggressive rate hikes.

Last week, Lagarde sent bond yields and the euro higher by signalling for the first time that an ECB rate hike this year was a possibility, but she has since tried to temper surging expectations of aggressive ECB action. 

On Friday, the single currency fell 0.2% versus the dollar to $1.1405, off from a three-month high touched the previous day, after Lagarde said in an interview that raising rates now would not bring down record euro zone inflation but only slow down economic growth. 

"Those comments, plus earlier remarks from Bullard seem to be behind the complete reversal of yesterday's EUR/USD rally," said Chris Turner, global head of markets at ING.

Fed's Bullard told Bloomberg he'd like to see 100 basis points of hikes by July. 

Also supporting Fed rates bets and the dollar, data showed on Thursday that U.S. consumer prices rose 7.5% year-on-year in January, slightly higher than economists' forecasts. 

The dollar edged 0.07% lower against a basket of peers -including the euro - at 95.725, after climbing to its highest of 96.058 since Feb. 3.

"If the Fed is to step hard on the monetary brakes, we would certainly favour the dollar against the low yielders backed by central bankers who have firmly placed themselves in the dovish camp," Turner said.

Goldman Sachs now expects seven 25-bps interest rate rises from the Fed this year, up from its previous forecast of five. 

More than 160 bps of Fed tightening is priced in by the end of the year. F

For the ECB, money market bets still imply a 10 bps rate hike by June and a 50 bps increase by December. IRPR

Sterling was up 0.35% versus the euro at 83.98 pence, with markets pricing another 25-bps hike from the Bank of England next month. 

(Reporting by Joice Alves, additional reporting by Tom Westbrook; Editing by Emelia Sithole-Matarise, William Maclean) ((joice.alves@thomsonreuters.com; twitter @joiceal))