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* Dollar index close to last week's highs
* Investors seen lightening positions into year-end
* Yen boosted by better-than-expected Japanese data
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Jemima Kelly
LONDON, Dec 19 The dollar steadied close to its
highest levels in 14 years on Monday, underpinned by
expectations that a fiscal expansion planned by U.S.
President-elect Donald Trump will boost inflation and lead to a
faster pace of interest rates hikes.
The greenback surged to its highest since January 2003
against a basket of currencies last week and threatened
parity with the euro, after the U.S. Federal Reserve
hinted that rates could rise as many as three times next year.
But the dollar drifted a little on Friday and, at 102.88 on
Monday, was around 0.7 percent below Thursday's peak of 103.56,
with investors booking profits and lightening hefty bets on the
currency as a two-week holiday period began, meaning thin
"The strength we've had post Trump's election could fade a
little into the end of the year. People just close down some of
their long positions on the dollar," said HSBC currency
strategist Dominic Bunning, in London.
"Does the market still believe in the Trumpflation story?
Does it still believe Trump is going to deliver fiscal
loosening, with infrastructure spending, tax cuts etc? At the
moment there's been nothing to change that view."
Citi's head of G10 currency strategy in London, Richard
Cochinos, said a speech by Fed Chair Janet Yellen due at 1830
GMT would be watched for any hint that last week's Fed meeting
was interpreted by markets as more hawkish than had been
Against the yen, the dollar fell as much as 0.9 percent,
before recovering a touch to trade down half a percent on the
day by 1140 GMT at 117.27 yen. The yen was boosted by
data showing Japan's export performance improved strongly in
Data released on Friday showed dollar net long positions
were little changed in the week to Dec. 13, affirming a trend in
place since the Trump's election victory on Nov. 8. Net shorts
on the yen rose to their largest since early December last year.
The Bank of Japan kicked off a two-day policy meeting on
Monday, at which it is expected to maintain 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.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Tokyo markets team; editing by John