* Major currencies hold to wafer-thin range in Asia
* Dollar camped at 117.59 yen, $1.0434 per euro
* Further dollar gains expected over time as yields diverge
By Wayne Cole
SYDNEY, Dec 23 It was hard to find a pulse in
the currency market on Friday as dealers bedded down for the
Christmas holidays, though the mood remains bullish for more
dollar gains in the New Year as yield spreads widen in its
The dollar was dozing at 117.55 yen after reaching
118.66 yen a week ago, its strongest since early February.
The single currency was a shade firmer at $1.0434,
having rebounded only modestly from a nearly 14-year low of
$1.0350 set on Tuesday.
The dollar index was marginally higher at 103.05 and
within striking distance of the week's 103.65 peak.
Data out on Thursday had shown U.S. economic growth was
quicker than initially forecasted in the third quarter, but
disappointing numbers on personal spending and income pointed to
a slowdown in the present quarter.
The dollar rally has been fuelled in part by bets that the
incoming Trump Administration and a Republican-controlled
Congress would slash taxes and boost debt-funded spending,
pushing up inflation and bond yields.
Currently two-year U.S. paper offers a plump
premium of 198 basis points over German debt, up from 144 at the
start of November and near the widest since 2005.
"Yields spreads should attract more capital into the USD,"
said Ray Attrill, global co-head of FX at NAB.
"Monetary policy divergence is set to be more pronounced in
2017 with Fed tightening while BoJ, ECB and BoE further expand
their balance sheets," he added. "FOMC risk is skewed to the Fed
doing more, not less, than the 60 basis points of tightening
Indeed, the Bank of Japan and European Central Bank are
actively working to keep their short-term yields deep in
negative territory, widening the gap even further.
Yet Attrill also saw reasons why the dollar might not rise
as far as some bulls expect.
He argued the dollar rally already fully reflected the
widening in spreads since Trump's election and a further sharp
increase in U.S. yields could start to weigh on stocks and the
economy, drawing resistance from the Federal Reserve.
"We aren't expecting 10-year US yields to make a sustained
move above 2.75 percent in 2017. This is more consistent with a
3-5 percent rise in the USD than 10 percent."
Elsewhere, traders were keeping an eye on developments in
the widely anticipated government-led rescue of Monte dei Paschi
di Siena bank with the Italian cabinet meeting to
hammer out the details.
(Reporting by Wayne Cole; Editing by Eric Meijer)