* Upcoming inflation data is key to next dollar move
* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
LONDON, Aug 7 (Reuters) - The dollar edged lower on Monday following sharp gains in the previous session, as investors focused on inflation data due this week that could determine the currency's longer-term trajectory.
The dollar index against a basket of six major currencies was 0.1 percent lower at 93.44 having climbed 0.75 percent on Friday. That was its biggest single-day rise of 2017 and pulled it away from 92.548, its lowest level since May 2016 that it marked on Wednesday.
The greenback hit that trough after weak U.S. indicators added to uncertainty about Federal Reserve ambitions to start shrinking its $4.2 trillion bond portfolio and the pace of rate hikes amid political ructions in Washington.
But strong employment data on Friday helped the dollar snap out of its downturn.
U.S. producer prices for July due on Thursday and consumer price index figures on Friday should confirm whether the labour market strength is spilling over into inflation.
"The number one question for bond markets right now is whether missing U.S. inflation over the past quarter has been transitory or transitional," said Viraj Patel, an FX strategist at ING in London.
The euro rose against the dollar to $1.17865 on Monday after falling more than 0.7 percent on Friday.
Morgan Stanley strategists said they expect the common currency - which hit a 2-1/2-year high of 1.19105 last week - to dip to around 1.1650/1.1700 before resuming its upward march to 1.20 in coming days.
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(Reporting by Saikat Chatterjee; editing by John Stonestreet)