The dollar rose against most currencies on Tuesday, helped by upbeat US housing data, but gains were limited by doubts about the overall impact of a major US tax overhaul plan on the economy. The Republican-controlled US House of Representatives approved sweeping, debt-financed tax legislation on Tuesday, sending the bill to the Senate, where lawmakers were due to take up the package later in the evening.
Passage was all but certain in the Republican-controlled Senate, as well. The dollar, however, trimmed gains versus the yen and held losses against the euro after the House approved the bill.
"Any boost to the economy would be small and there is nothing in the final bill to change that view," said London-based Andrew Hunter, US economist, at Capital Economics. Stock markets around the world surged this week on US tax cut hopes, but the greenback has remained muted. Traders believe most of the positive impact of the cuts to corporate taxes have already been priced in, while expectations the overhaul would trigger a wave of repatriated dollars were overplayed.
"There is little evidence linking corporate tax cuts to stronger growth," Hunter said. "There are few examples either historically in the US or internationally of lower corporate taxes resulting in a significant and sustained boost to business investment." The tax plan, designed in part to give US multinationals a reason to repatriate the roughly $2.6 trillion in profits held by their foreign subsidiaries, would slash tax rates on such previously accumulated earnings.
"We think FX markets are less fazed by the bill; whether it will induce a material shift in investment and the balance of payments remains unclear," said Mazen Issa, senior FX strategist at TD Securities in New York. The greenback earlier gained ground after data showed domestic home construction unexpectedly rose to a 13-month peak in November with the building of single-family homes hitting a 10-year high.
In late trading, the dollar rose 0.3 percent against the yen to 112.92 yen. It was little changed against the Swiss franc, but higher versus sterling as well as the Australian, Canadian, and New Zealand dollars. Against the euro, however, the dollar was weaker. The euro was last at $1.1842, up 0.5 percent, benefiting from an overall rise in risk appetite with US Treasury yields higher on the day.
Europe's shared currency has gained more than 12 percent against the dollar so far this year and is on track to post its strongest yearly performance since 2004.