The dollar steadied on Tuesday after posting its biggest daily rise in a week in the previous session as caution set in before the US tax bill becomes reality, with sterling bouncing off the day's lows. Against a basket of six major currencies, the dollar was broadly flat at 93.134 after gaining about 0.3 percent the previous day, its biggest daily rise since November 28.
The Senate must now reconcile its version of the bill with legislation passed by the House of Representatives. Though the dollar has recovered some poise after falling to a two-month low last week, market strategists expect further dollar gains next year to be limited, with the euro likely to be the beneficiary.
In a 2018 outlook report published on Tuesday, ING strategists expect the euro to rise to $1.30 against the dollar next year, a level it hasn't traded at since September 2014. "The euro is in the "sweet spot" of this global recovery and looks well-positioned for the investment cycle," said Petr Krpata, chief EMEA FX strategist at ING in London.
On Tuesday, it was broadly flat against the dollar at $1.1856. Meanwhile, sterling trimmed earlier losses to trade 0.4 percent down on the day at $1.3420 as broad disappointment over the lack of a Brexit deal prompted some investors to cut their long bets. It hit an intraday low of $1.3370.
Prime Minister Theresa May failed to clinch a deal on Monday to open talks on post-Brexit free trade with the European Union after a tentative deal with Dublin to keep EU rules in Northern Ireland aangered her allies in Belfast Commerzbank strategists said Monday's volatility in sterling showed how difficult the Brexit negotiations remain.
"As soon as the second round of the negotiations starts, which will be dealing with the trade agreement, things are going to heat up further as every single one of the 27 EU countries had the right to veto the agreement and can therefore block any progress," they said. The Australian dollar led early gainers and was 0.6 percent higher at $0.7639 after data showed strong retail sales in October after months of lukewarm demand.
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