Dollar under pressure on US tax reform concerns

The dollar fell against a basket of major currencies on Monday, as concerns grew on whether a proposed US tax reform program would have a major impact on economic growth, after the bill moved another step closer to passage over the weekend. The US currency had edged higher after Republicans on the House-Senate negotiating committee on Friday put the finishing touches to a sweeping tax overhaul that involves large cuts in levies on corporations.
But it slid on Monday on some uncertainty that the bill would indeed be pushed through, and with some doubts creeping in over the pro-growth effect the tax reforms would have. "Traders are taking a more cautious approach...with uncertainty about the real-world impact of the tax package to keep risk appetites suppressed," said Karl Schamotta, director of global product and market strategy for Cambridge Global Payments in Toronto.
But he believes the dollar has further scope to go higher. Economic forecasters expect lower corporate taxes to raise US growth by roughly 0.5 percent over the next year, potentially lifting the pace of interest rate increases from the two currently being priced in by the market to closer to the three hikes consistently estimated projected by Federal Reserve policymakers, Schamotta said.
Against a basket of major currencies, the dollar fell 0.4 percent to 93.568. The euro benefited from the dollar's weakness, gaining 0.5 percent to $1.1807. Year-end demand for dollars had helped push the greenback up against the euro in recent sessions, said Alvin Tan, a strategist at Societe Generale in London, but that had slowed on Monday, adding to pressure on the dollar.
Top Republicans are confident Congress will now pass the tax bill this week, with a Senate vote as early as Tuesday and President Donald Trump aiming to sign the bill by week's end. The dollar was 0.1 percent lower against the yen at 112.54 yen following Friday's rise of 0.2 percent.
The greenback also failed to get support from the rise in US Treasury yields on Monday. That said, the long-term Treasury yield has been confined to a narrow 2.34-2.42 percent range over the past week. Bitcoin, meanwhile, was down 1.5 percent at $18,676 on the Bitstamp exchange. It rose to a record high of $19,666 on Sunday, ahead of the launch of bitcoin futures from CME Group Inc.