The dollar fell to its lowest in a week against a basket of major currencies on Thursday after Republicans in the US House of Representatives released proposals to overhaul the tax code. The legislation called for slashing the corporate tax rate to 20 percent from 35 percent and reducing the number of tax brackets for individuals, according to a summary document obtained by Reuters.
Analysts said the proposals put forth were both unlikely to gather sufficient support in Congress and unlikely to have significant impact on the US economy. "Massive" tax cuts had been a major campaign promise of US President Donald Trump. "The market believes that the likelihood of tax reform passing quickly is diminished," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange. "... the market believes that it's not enough to be meaningful. It's doubtful that it'll be meaningful for the overall GDP of the country."
Cutting taxes would increase spending, drive inflation and US interest rates higher, and make the dollar more attractive. If the tax cuts fail to pass or do not provide incentive for increased spending, they would not support a stronger dollar. The dollar index fell to 94.411, its lowest since October 26. It had earlier risen, almost touching its highest level since mid-July.
The euro hit its highest level in a week against the dollar, rising to $1.1687. The dollar also hit a session low against the Japanese yen after the tax cut proposal's release, falling to 113.55 yen. The pound initially rose on the announcement, climbing to as high as $1.3279 GBP=D3, from around $1.3215 beforehand.
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