By Suryatapa Bhattacharya and Rachel Koning Beals

The dollar rose as high as 111.18 yen earlier, highest since May 31

Dollar gains faded Monday as traders paused for breath after last week's action continued the longest win streak for the U.S. currency in over three years.

The dollar briefly hit a fresh multimonth high against the yen during Asian trading hours amid continued expectations for a Federal Reserve interest-rate increase and fiscal stimulus by President-elect Donald Trump.

"The move appeared to be corrective after the greenback rose for 10 consecutive days against its major counterparts, marking the longest winning streak in over three years," said Ilya Spivak, currency strategist at Daily FX. "The relentless advance has reflected a sharp steepening of the projected Fed rate hike trajectory following the U.S. presidential election."

The ICE Dollar Index fell 0.5% after rising on Friday for a 10th straight day to hit 101.54, its highest since April 2003.

Against its Japanese counterpart, the dollar was at Yen110.56, compared with Yen110.90 late Friday in New York. The dollar rose as high as 111.18 during Asian trading hours, the highest level since May 31.

The euro was at $1.0632 versus $1.0592 late Friday in New York.

German Chancellor Angela Merkel said Sunday she will run for a fourth term next year.

Read:All the potential political risks looming in Europe, in one chart (http://www.marketwatch.com/story/all-the-potential-political-risks-looming-in-europe-in-one-chart-2016-11-14)

See:Getting closer: Will euro, dollar reach parity? (http://www.marketwatch.com/story/getting-closer-will-euro-dollar-reach-parity-2016-11-20)

The British pound was at $1.2387, compared with $1.2347 late Friday.

Investors locked in expectations of a U.S. rate increase and bought the dollar and sold the yen based on comments by New York Federal Reserve President William Dudley on Friday, analysts said. He said inflation expectations were "well-anchored."

"Even though investors are concerned about a sharp rate rise and inflation expectation, market participants almost fully expect rate-hike action, so it's quite natural that exchange and interest rates are being affected," said Yunosuke Ikeda, FX strategist with Nomura Securities in Tokyo.

Read:4 reasons why a strong dollar may sink the stock-market rally in 2017 (http://www.marketwatch.com/story/4-reasons-why-a-strong-dollar-may-sink-the-stock-market-rally-in-2017-2016-11-18)

Japanese institutional investors weren't part of the dollar rally, as they are uncomfortable with the uncertaintygenerated by win, Ikeda said. "It's a kind of market consensus that Trump means uncertainty, and Japanese investors don't like uncertainty," he said.

Foreign investors were driving the dollar rally against the yen. As short-term speculative players, they were taking advantage of the sharp rise in U.S. interest rates, while Japanese interest rates remain anchored by the Bank of Japan. "Yen is the most comfortable currency to sell against the dollar because yields are rising everywhere but here," Ikeda said.

Japanese economic data that showed on one hand that exports were down, though overall the economy was doing much better. Figures released Monday by the Ministry of Finance showed that the country's exports fell 10.3% in October (http://www.marketwatch.com/story/japan-exports-drop-for-13th-consecutive-month-2016-11-20) from a year earlier, coming in worse than a 9.4% drop forecast by economists polled by The Wall Street Journal. Yet exports were stronger than in previous three months.

A weaker yen that has followed in the wake of Trump's election should aid big Japanese exporters by lowering prices of Japanese goods in other currencies and raising profit. Meanwhile, Japan's economy grew 2.2% on an annualized basis in the most recent quarter, beating economist expectations.

(END) Dow Jones Newswires

November 21, 2016 07:19 ET (12:19 GMT)

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