(Adds more comment, updates prices)
* Dollar camped around 117.50 yen, $1.0440 per euro
* Around 1 percent off highs hit earlier in December
* Further dollar gains expected as yields diverge
* Italian govt approves rescue package for troubled banks
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Dec 23 The dollar headed into the
Christmas break on Friday just over half a percent off highs hit
after this month's U.S. Federal Reserve meeting, with a handful
of second-tier data unlikely to disturb markets already in
With Tokyo absent, the dollar inched down to 117.36 yen
, compared with 10-month highs of 118.66 yen a week ago
and almost unchanged for the year, having been as low as 99.00
The euro was also a shade firmer at $1.0448, having
rebounded only modestly from a nearly 14-year low of $1.0350 set
earlier in the week.
Many in financial markets are betting on further dollar
strength next year, but dealers expect little progress over the
next two weeks when most investors will be absent and volumes
In support of the yen, the euro and sterling are the scale
of their falls over the past six months, tempting short-term
players to take profit on those trades.
Both the yen and euro may also be safe havens for capital in
the face of security concerns and the risk a Donald Trump White
House, while supporting inflation and a repatriation of funds to
the United States, may provoke a trade war with China.
The dollar is up more than 7 percent against a basket of
currencies since lows hit on U.S. election night in November but
has been flat for the past week.
"My overall sense is that we'll start the year eking out
further gains from the post-Trump trends, before we get a change
of tack," said Societe Generale strategist Kit Juckes.
"I reckon dollar-yen will get as high as it can relatively
early in the year, the euro as low as it can by the time of the
French elections in May and Treasury yields may get as high as
they can sometime soon after that."
The dollar index was marginally lower at 103.04, just
over half a cent off its 103.65 post-Fed peak.
Bets a Trump Administration and Republican-controlled
Congress will push up inflation next year have driven two-year
U.S. yields almost two percentage points above their
German equivalent, the widest since 2005.
At the same time, the Bank of Japan and European Central
Bank are actively working to keep short-term yields negative,
suggesting the gap may widen further.
"We still expect a bullish dollar narrative to continue to
dominate currency market themes as we enter 2017," said Adam
Myers, senior rates and FX strategist with Commonwealth Bank in
"We look for renewed euro downside to begin as early as next
week (and) a fall below parity during the first quarter."
(Additional reporting by Wayne Cole in Sydney; Editing by
Alison Williams and Nigel Stephenson)