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U.S. dollar rally to 14-year highs halts on profit-taking

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Kacper Pempel | Reuters

The U.S. dollar edged higher against a basket of major currencies on Friday, holding near 14-year highs touched after Wednesday's Federal Reserve meeting, with profit-taking halting the momentum of the greenback's rally.

The dollar index, which measures the greenback against a basket of six major rivals, was last at 102.88, not far from Thursday's 14-year high of 103.560 but down 0.15 percent on the day in the wake of Wednesday's Fed decision.

The index gained 1.2 percent on Thursday to mark its biggest daily percentage gain in nearly six months a day after the U.S. central bank raised interest rates for the first time in a year. The Fed also signaled it was likely to increase rates three more times in 2017, up from the two increases forecast at the central bank's September meeting.

The projections, combined with expectations that U.S. President-elect Donald Trump's incoming administration may boost U.S. economic growth with fiscal stimulus, sent the dollar shooting higher and brought parity with the euro back in play.

Profit-taking ahead of the weekend and expectations of a squeeze on dollar liquidity heading into year-end dampened the dollar's gains on Friday, analysts said.

"We've had such big moves," said Axel Merk, president and chief investment officer of Merk Investments in Palo Alto, California. "People are squaring positions."

The euro was last up against the dollar at $1.0438 after hitting a nearly 14-year low of $1.0364 Thursday, while the dollar was up against the yen at 117.82 yen after hitting a roughly 10-1/2 month high of 118.66 yen Thursday. It gained 0.4 percent against the Canadian dollar to C$1.3382.

Only 10 of more than 50 polled by Reuters earlier this month forecast the dollar reaching parity with the euro within the next 12 months. On Friday that threshold was only about 4 percent away.

But given the scale of the moves in the past month, driven on by volatility around last week's European Central Bank meeting and the Italian constitutional referendum, many players may now be content to walk away until January.

"We're probably starting to thin out for the holidays as well, so there are some people taking some profits," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.

Against the Swiss franc, the dollar was last down 0.04 percent at 1.0294 francs after touching 1.0344 francs on Thursday, its highest since August 2010.