(New throughout after start of European trade)
* Fed expected to hike at two-day meeting beginning Tuesday
* Market worried Fed may be cautious on dollar strength
* Oil price rally lifts Canadian dollar, Norwegian crown
* Long dollar positions continue to rise - IMM data
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Dec 12 The dollar rose to its highest
since February against the yen on Monday as U.S. bond yields
climbed on the back of expectations of broadly higher inflation,
driven by a 5 percent rise in global oil prices.
The Norwegian crown and Canadian dollar were the other big
gainers after OPEC and non-OPEC producers struck their first
deal since 2001 to curtail output jointly, driving crude prices
to their highest levels in a year and a half.
Added to gains for the euro and sterling that held the
dollar flat against the basket of currencies used to measure its
broader strength and traders said the market was cautious ahead
of the U.S. Federal Reserve's meeting on Wednesday.
With a rise in interest rates fully priced in this week, the
question is what sort of signal Fed chair Janet Yellen sends on
the pace of more tightening next year and whether its board is
nervous enough about the dollar's strength to mention it.
"It's going to be hard to have the energy to make new lows
before the Fed," said Richard Benson, co-head of portfolio
investment at currency fund Millennium Global in London.
"An explicit mention of the currency in either the statement
or the news conference and it might become more difficult for
The dollar rose half a percent to trade above 116 yen for
the first time since early February. It lost 0.4 percent
against its Canadian equivalent and was 0.1 percent lower
against the euro at $1.5760.
Speculators increased positive bets on the greenback for a
third straight week through Dec. 6, pushing net longs to their
highest since early January, according to Reuters calculations
and data from the Commodity Futures Trading Commission released
But there are nerves around. President-elect Donald Trump's
comments at the weekend spurred concerns about whether he is on
course for a conflict with China that could cramp global trade
and cool investors' appetite for risk.
That would tend to benefit traditional safe havens for
capital like Japan but for now are secondary to the growing
yield differential between U.S. and Japanese interest rates.
"The big challenges for the dollar against the yen are the
speed of the move, and the risk of position-squaring once the
last big policy event of the year is out of the way on
Wednesday," Societe Generale strategist Kit Juckes said.
"But as long as yield divergence doesn't drive risk appetite
into depression, there's further to go in this move."
(Editing by Janet Lawrence)