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Dollar sits back after record-breaking run higher

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[September 22, 2014] By Patrick Graham

LONDON (Reuters) - Major currencies recovered some ground against the dollar on Monday after the dollar index racked up a 10th straight week of gains, its longest winning streak since its free float in 1973.

Stock and currency markets were taking a breather after one of the most volatile and event-filled weeks in more than a year, but there is plenty of data and policymaker comment spread through this week for investors to get their teeth into.

Top of the agenda for the euro is European Central Bank President Mario Draghi's appearance in the European parliament, which follows a lukewarm take-up for the bank's latest scheme to push more money through the financial system.

If purchasing managers surveys on Tuesday point to more weakness in the euro zone economy, it will fuel speculation that Draghi will be forced to embark on the sort of outright money-printing to which U.S. policymakers have just called a halt.

"The dollar is now on a pretty strong footing, although after last week's action we could be in for a bit of a lull," said Derek Halpenny, European Head of Global Market Research at Bank of Tokyo Mitsubishi-UFJ in London.

"We have a handful of Fed speakers and Draghi to go on, but I'm not sure any of that will be enough to push us much further this week."

BTM have the euro at $1.27 by the end of this year then falling to $1.20 next, underpinned by a widening gap in U.S. and European market interest rates that reflect expectations the Federal Reserve will raise borrowing costs next year.

"We're quite happy with that fairly conservative end of year forecast because there is quite a lot priced into the dollar already," Halpenny said.

The euro traded just over 0.2 percent higher on the day at $1.2860 <EUR=> after touching a 14-month trough of $1.2826.

The dollar index, a gauge of the greenback's strength against a basket of major currencies, was down 0.15 percent 84.611 <.DXY> in early trade in Europe, just off a two-year high of 84.797 hit Friday.


While sterling was around 0.4 percent higher at $1.6348, it has made little headway since Friday's Scottish referendum result. Major political risks - including the fallout from Scotland's vote to reject independence and next May's general election in the United Kingdom - still lie ahead for the pound and other British assets.

The yen also eked out some lost territory after slumping to a six-year low against the dollar late last week, although the gains were modest.

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There was little help from a weekend meeting of G20 finance ministers and bank chiefs in Cairns, Australia, where currencies got little mention.

The G20 said they were close to adding an extra $2 trillion to the global economy and creating millions of new jobs, but Europe's extended stagnation remained a major stumbling block.

"Currency movements look to have drawn little focus at this weekend's G20 meeting," Todd Elmer, currency strategist at CitiFX in Singapore, said in a note to clients.

"This will likely be viewed as JPY-negative since it runs counter to building speculation that authorities, both foreign and domestic, are becoming more concerned with recent depreciation."

Japanese officials have stopped short of actively talking down the dollar's gains versus the yen, though they have voiced concerns about wide currency swings.

Finance minister Taro Aso and economy minister Akira Amari have suggested this month that a sharp decline in the yen would be unwelcome, preferring instead more gradual moves.

The dollar dipped 0.2 percent to 108.87 yen <JPY=> after hitting a six-year high of 109.46 on Friday.

(Additional reporting by Shinichi Saoshiro; Editing by Catherine Evans)

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