* Major currencies in holding pattern
* Christmas holiday keeps markets subdued
* U.S. consumer spending posts largest increase in five
* International Monetary Fund will raise U.S. growth
By Julie Haviv
NEW YORK, Dec 23 The dollar edged lower on
Monday in illiquid trade, but optimism about the U.S. economy
growing and the Federal Reserve starting to withdraw some of its
stimulus capped the currency's losses.
Major currencies were in a holding pattern due to a holiday
in Japan, while for most of Europe it was the last full trading
session before a Christmas break. That left many investors and
speculators to square positions and trim long dollar positions
before the year-end.
U.S. consumer spending posted its largest increase in five
months in November, the latest suggestion of sustained strength
in the economy as the year winds down.
The report fit the Fed's upbeat view on the economy, which
prompted the U.S. central bank to announce last week that it
would start reducing its monthly bond purchases from January.
"The risk this week has more to do with flows and potential
position into year-end," said Camilla Sutton, chief currency
strategist at Scotia Bank in Toronto.
"As we move into a holiday-laden week, liquidity is likely
to be lighter than usual. Accordingly, any large flows leading
into year-end could make for awkward movements," she said.
In early New York trade, the dollar was 0.2 percent lower at
103.94 yen, but not far from a five-year peak of 104.63
yen hit on Friday.
Sentiment globally was underpinned by Friday's upbeat U.S.
GDP data and the Federal Reserve's decision last week to start
scaling back its bond-buying stimulus.
International Monetary Fund managing director Christine
Lagarde said on Sunday the international lender would raise its
U.S. growth forecast for the world's largest economy next year.
"While the potential for speculative dollar/yen profit
taking remains substantial given yet another new high, the
underlying trend of yen weakness should persist into the new
year," said Adam Myers, European head of FX strategy at Credit
"Our expectations for dollar buying in early 2014,
complementing yen selling pressure should resume and see
dollar/yen move higher towards our 106 yen end-March forecast."
The euro traded 0.2 percent higher at $1.3694, having
climbed off a two-week trough of $1.3623 on Friday. Against the
yen, the common currency traded flat at 142.28, not
far from a five-year high of 142.89 reached last week.
Part of the reason why the dollar remains sought-after is
that short-dated Treasury yields are still moving
higher, driven by expectations the Federal Reserve will continue
to trim its bond-buying program in coming months.
The 10-year Treasury yield rose and if
forthcoming activity out of the United States continues to
outperform, rate differentials will likely continue to favor