* Dollar index, euro below last week's highs ahead of
* BOJ expected to hold steady at 2-day meeting beginning on
* Chinese seizure of US drone gave yen a safe-haven lift
* Australian dollar edges down after budget deficit forecast
TOKYO, Dec 19 The dollar edged lower in Asian
trading on Monday as some investors took profits after its rise
last week to a 14-year peak against a currency basket, though it
remained underpinned by expectations of more U.S. interest hikes
in the coming year.
The Federal Reserve's interest rate forecasts released on
Wednesday, after its widely expected rate increase, showed three
more hikes in 2017, which fuelled the dollar's rise to last
The dollar index, which tracks the U.S. currency
against a basket of six major counterparts, was last down 0.2
percent at 102.720. It climbed as high as 103.560 last week.
The euro was last up slightly at $1.0457, holding
above a nearly 14-year low of $1.0364 notched last week.
The dollar was down 0.4 percent against its Japanese peer at
117.38 yen, taking a breather after climbing to a 10-1/2
month high of 118.66 yen last week.
"With the Christmas and year-end holidays coming, there is
no incentive for investors to take new risks, and there is some
profit-taking, so it is difficult for major currency pairs to
move much," said Kumiko Ishikawa, FX market analyst at Sony
"We'll probably continue to see some adjustments of
dollar-long positions this week," she added.
U.S. dollar net long positions were little changed in the
week through Dec. 13, affirming a trend in place since the Nov.
8 election of Donald Trump as U.S. president on the expectation
of more inflationary infrastructure and fiscal spending.
Net shorts on the yen, meanwhile, rose to their largest
since early December last year, according to Reuters
calculations and data from the Commodity Futures Trading
Commission released on Friday.
Japanese trade data released early in the session showed the
impact of the weaker yen is already apparent, as exports fell at
a slower pace in November. They slipped 0.4 percent in the year
to November, compared to a 2.0 percent annual decline expected
by economists in a Reuters poll.
The Bank of Japan was scheduled to begin a two-day policy
meeting on Monday, at which it is expected to stand pat on its
10-year government bond yield target as the weaker yen helps
Japan's economic prospects, a Reuters poll showed on Friday.
"The speed of the yen's weakening was likely much faster
than the BOJ anticipated," said Ayako Sera, market economist at
Sumitomo Mitsui Trust Bank in Tokyo.
"While no major changes are expected from the meeting, some
tweaks to policy are possible, to adjust to the new market
situation," she said.
The perceived safe-haven yen got a lift late in late U.S.
trade on Friday after news that a Chinese Navy warship had
seized a U.S. underwater drone in international waters in the
South China Sea. China agreed on Saturday to return the drone,
apparently defusing the situation.
China believes the drone is part of U.S. surveillance
efforts in the disputed waterway, but Beijing won't likely make
a big fuss about its handover, Chinese state media and experts
While many investors closed their books in the waning days
of the year, others braces themselves for the possibility of
volatile moves in thin liquidity.
"In five of the last nine years, the last two weeks of the
year have been pretty quiet, but in 2008 and again in 2014, the
last two weeks were the most volatile of the year," Marshall
Gittler, head of investment research at FXPrimus, said in a
Later on Monday, the U.S. Electoral College will meet to
formally elect Donald Trump as the next president.
Trump won the contest for the electoral college, which is
calculated on a state-by-state basis, but trailed Hillary
Clinton in the popular vote. Some electors have said they do not
intend to cast their votes for him.
"While the Electoral College's rejection of Trump is
certainly a low probability event, it would mean absolute chaos
for the market if it did occur," Gittler said.
The Australian dollar slipped 0.2 percent on Monday to
$0.7293, edging back toward a six-month nadir plumbed
last week, after the government forecast a smaller-than-feared
budget deficit this year. But this could not fully deflect the
threat of a downgrade to the country's top credit rating.
(Reporting by Tokyo markets team; Editing by Eric Meijer and