Dollar inches lower as US tax bill, budget progress eyed

TOKYO: The dollar edged down on Wednesday, as concerns about a possible U.S. government shutdown offset optimism about progress on tax reform legislation, while the Australian dollar weakened after economic data showed worrying signs for growth.

The dollar index, which tracks the greenback against a basket of six major currencies, inched 0.1 percent lower to 93.297.

The euro was steady on the day at $1.1828, while the dollar edged down 0.1 percent against its Japanese counterpart to 112.38 yen.

Sterling, already under pressure amid evaporating hopes for a near-term Brexit accord, dipped on Wednesday after a report of a failed plot to kill UK Prime Minister Theresa May. Sky News said on Tuesday, citing sources, that a plan to assassinate May had been foiled.

In the U.S., the Republican-controlled House of Representatives voted on Monday to go to conference with the Senate to begin formal negotiations on the tax bill, with the Republican-led Senate expected to hold a similar conference vote later this week.

But in the meantime, the possibility of a U.S. government shutdown looms, if lawmakers fail to reach a budget accord this week. Government funding is set to expire Friday.

"I think they will avoid a shutdown, but there is concern about that," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"If a tax cut deal can be reached by the year-end, it should be positive for the dollar and the risk-taking behaviour of global investors, but until then, markets are in a wait-and-see-mode," he said.

Expectations of higher U.S. rates underpinned the dollar, though a flattening U.S. Treasury yield curve kept investors' hopes in check.

Fed funds futures prices show that investors expect the U.S. central bank to hike rates at its Dec. 12-13 meeting, with futures prices showing a zero percent chance of rates remaining at their current level of 1.00-1.25 percent.

The two-year Treasury yield probed nine-year highs on Tuesday, but concerns about the tax bill and budget impasse pressured yields on longer maturities.

The pound was down 0.2 percent at $1.3426, though it remained above its overnight low of $1.3370.

Prime Minister May's failure to clinch a deal to open talks on post-Brexit free trade with the European Union after a tentative pact with Dublin to keep EU rules in Northern Ireland angered her allies in Belfast.

"The pound is very sensitive to headline news about these political developments, which is keeping it in check," said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

The Australian dollar slipped 0.3 percent to $0.7585 , within sight of its five-month low of $0.7532 plumbed on Nov. 21.

Australian gross domestic product grew by 0.6 percent in the third quarter, slowing from the previous quarter's rise of 0.9 percent and a hair short of market forecasts for a rise of 0.7 percent. Marked weakness in household spending cast a cloud over the outlook for growth.

Bitcoin was up 3.8 percent at $12,102, after touching a record high of $12,134.