* Dollar higher across board after earlier losses
* Sterling hits lowest since Nov. 2
* Euro falls back below $1.04
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Patrick Graham and Jemima Kelly
LONDON, Dec 28 Expectations U.S. inflation and
growth will outstrip the rest of the developed world's prodded
the dollar higher across the board on Wednesday, knocking half a
cent off the euro and driving sterling to a two-month low.
Further gains for the greenback are one of the big consensus
plays for financial investors going into 2017, although there
have been signs of more doubt in recent weeks, with analysts
beginning to wonder how much further appreciation a Donald Trump
White House will tolerate.
After a mixed morning in Europe, by 1150 the dollar was up
0.6 percent at $1.0399 per euro and 0.3 percent at 117.78 yen.
Sterling also fell as much as half a percent to reach $1.2222,
its lowest since Nov. 2, before steadying.
"Our case is that there's probably a bit more room for (the
dollar) to run," said Dominic Bunning, a strategist with HSBC in
"And if it does, (the market will look at) how long before
the combination of higher rates and a stronger dollar start to
weigh on the U.S. economy and tighten financial conditions
enough that it slows the economy."
Some analysts pointed to the rise in the European Central
Bank's estimates of how much additional capital will be needed
to prop up Italian bank Monte dei Paschi di Siena as another
source of euro weakness.
With little evidence of much speculative money at work in
reduced holiday volumes, Bunning said there was likely to be
steady pressure on the pound from Britain's large current
account deficit - seen as an important weakness as the
government heads into negotiations on its EU exit.
"In a world where you have a current account deficit that is
5 or 5.5 percent of GDP ... the pressure on the currency will
continue to weaken it if there isn't capital to finance that
deficit," he said.
Trump's concern over the rate of the Chinese yuan is well
known, but BNY Mellon strategist Simon Derrick also points to
similar comments he made earlier this year on Japan's drive to
weaken the yen.
"While the market collectively may not be focusing on the
story, dollar strength could become a domestic political issue
in 2017 should it persist," Derrick said.
"Should the dollar make substantial gains from here,
particularly against the yen, it will be interesting to see how
president-elect Trump responds given his previous comment."
The dollar has gained 16 percent against the yen from lows
hit on U.S. election night in November.
(Editing by Andrew Roche)