FOREX-Dollar falls to more than 3-month low on first day of 2018

    * Dollar pressured by doubts about Fed rate hike outlook
    * Euro rises as ECB seen normalizing rate policy
    * MiFID II introduction weighs on volumes

 (New throughout, updates prices, market activity, comments and
table; new byline, changes dateline; previous LONDON)
    By Gertrude Chavez-Dreyfuss
    NEW YORK, Jan 2 (Reuters) - The dollar sank on Tuesday to
its lowest in more than three months, weighed down on the first
trading day of 2018 by market expectations of a slower pace of
interest rate increases by the Federal Reserve amid a tepid U.S.
inflation picture.
    The dollar's decline continued the momentum of 2017, the
greenback's weakest annual performance in 14 years.
    "Investors remain skeptical about the Fed's outlook for
three additional interest rate increases this year, especially
given the extremely benign inflation backdrop in the U.S.," said
Omer Esiner, chief market analyst, at Commonwealth Foreign
Exchange in Washington. 
    The dollar's upside was also capped as many of the world's
major central banks such as the Bank of England and European
Central Bank are moving toward normalizing their own monetary
policies.
    Trading volumes were thin. Some strategists said traders
were wary of taking big positions ahead of Wednesday's scheduled
introduction of the wide-ranging EU financial markets directive
known as MiFID II, aimed at making European markets more
transparent and providing better value for investors.  
    The dollar index hit a 3-1/2-month trough of 91.751 and was
last down 0.1 percent at 91.996. For 2017, the dollar
index slid more than 9.8 percent, its weakest year since 2003.
    The euro has been on a tear especially since the second half
of last year, on optimism over a brightening economic picture in
the euro zone.
    In 2017, the single currency posted its strongest year
against the dollar since 2003 as European economies strengthened
and expectations grew that the ECB will wind down monetary
stimulus.
    The euro added more gains to start the new year,
climbing to a nearly four-month high of $1.2082. It was last up
0.2 percent at $1.2033.
    Euro zone manufacturers ended 2017 by ramping up activity at
the fastest pace in more than two decades, a survey showed on
Tuesday, and rising demand suggests they will start the new year
on a high.
    The European Central Bank's Benoit Coeure said on the
weekend he saw a "reasonable chance" the bank's bond purchases
would not be extended beyond September.
    "It's a combination of dollar weakness and euro strength.
The euro strength is underpinned by some hawkish comments from
the ECB's Coeure," said Commerzbank currency strategist Thu Lan
Nguyen in Frankfurt.
    
=========================================================
    Currency bid prices at 10:53AM (1553 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
                                              Session                                           
 Euro/Dollar      EUR=        $1.2037        $1.2008     +0.24%         +0.34%      +1.2082     +1.2002
 Dollar/Yen       JPY=        112.1300       112.6400    -0.45%         -0.48%      +112.7800   +112.0600
 Euro/Yen         EURJPY=     134.99         135.20      -0.16%         -0.14%      +135.6100   +134.9400
 Dollar/Swiss     CHF=        0.9722         0.9743      -0.22%         -0.22%      +0.9748     +0.9700
 Sterling/Dollar  GBP=        1.3564         1.3501      +0.47%         +0.38%      +1.3567     +1.3503
 Dollar/Canadian  CAD=        1.2525         1.2542      -0.14%         -0.41%      +1.2558     +1.2521
 Australian/Doll  AUD=        0.7827         0.7803      +0.31%         +0.33%      +0.7844     +0.7796
 ar                                                                                             
 Euro/Swiss       EURCHF=     1.1704         1.1704      +0.00%         +0.13%      +1.1727     +1.1692
 Euro/Sterling    EURGBP=     0.8872         0.8876      -0.05%         -0.12%      +0.8918     +0.8871
 NZ               NZD=        0.7103         0.7104      -0.01%         +0.24%      +0.7130     +0.7084
 Dollar/Dollar                                                                                  
 Dollar/Norway    NOK=        8.1379         8.1964      -0.71%         -0.84%      +8.1976     +8.0955
 Euro/Norway      EURNOK=     9.7974         9.8399      -0.43%         -0.52%      +9.8481     +9.7659
 Dollar/Sweden    SEK=        8.1810         8.2012      +0.09%         -0.25%      +8.2017     +8.1306
 Euro/Sweden      EURSEK=     9.8479         9.8386      +0.09%         +0.09%      +9.8545     +9.8085
 
    
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by
Tommy Wilkes in London; Editing by David Gregorio)
Our Standards:The Thomson Reuters Trust Principles.
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