* Graphic: World FX rates in 2018
By Saikat Chatterjee
LONDON, Dec 10 (Reuters) - The dollar consolidated losses on
Monday after posting its biggest weekly drop in more than three months
last week as weak U.S. data undercut expectations of more interest
rate increases in the world's biggest economy.
Widening interest rate differentials between the United States and
the rest of the world, driven by a confident U.S. Federal Reserve, has
fuelled an unlikely dollar rally this year. But weak data in recent
weeks has clouded the currency's prospects for next year.
U.S. non-farm payrolls increased by 155,000 jobs last month, below
a median forecast of 200,000 jobs, and the wage increase was weaker
than expected, even though its annual rise remained near the highest
level in almost a decade.
Apart from weak data, some Fed policymakers have struck a cautious
tone about the economic outlook, possibly flagging a turning point in
its monetary policy and lowering the expectations of U.S. rate hikes
priced into money markets.
Futures markets are now pricing in only a 44 percent chance of a
U.S. rate increase next year compared with nearly 80 percent last
Monday as the U.S. bond yield curve has flattened.
"Fed fund expectations are dropping like a stone and that is
a big obstacle for the dollar, though there is plenty of event risk
out there this week that will give plenty of thought for dollar
bears," said Ulrich Leuchtmann, an FX strategist at Commerzbank
Against a basket of currencies , the dollar was flat after
falling 0.8 percent last week, its biggest weekly drop since late August.
The euro led gains, rising 0.34 percent at $1.1470 though market
traders said currency markets will be in a wait-and-watch mode.
French President Emmanuel Macron will address the country at 2000
Paris time (1900 GMT) on Monday as he seeks to "yellow vest"
anti-government protesters that have wreaked havoc in Paris during the weekend.
In London, Theresa May faces an internal revolt against her Brexit
deal before a vote in the parliament on Tuesday. May plans to push
ahead with the vote, but senior lawmakers in her own party put
pressure on her to go back to Brussels and seek a better offer.
A rejection could throw plans for Britain's exit into turmoil and
leave her own political future hanging in the balance. Against the
dollar, the British pound was flat at $1.2720.
(Reporting by Saikat Chatterjee; additional reporting by Hideyuki
Sano in TOKYO; editing by Larry King)
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