Greenback holds on to modest gains after tax reform news

THE DOLLAR held modest gains against its peers yesterday, having received a lift after US tax reform efforts moved another step closer to ratification over the weekend.

The US currency had edged higher after Republicans on the House-Senate negotiating committee on Friday put the finishing touches on a sweeping tax overhaul that involves large corporate tax cuts.

Top Republicans are confident Congress will now pass the tax bill this week, with a Senate vote as early as today and President Donald Trump aiming to sign the bill by week’s end.

The dollar’s gains, however, were limited as investors adopted a wait-and-see approach until the deal was sealed.

It was effectively flat at 112.645 yen following Friday’s rise of 0.2 percent. The dollar index against a basket of six major currencies stood little changed at 93.890 after gaining 0.5 percent on Friday.

“The Senate and House will now vote on the tax bill this week and there appears to be some residual concern that all might not go smoothly, especially with some senators facing health issues,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

Senators Thad Cochran and John McCain have been ill in recent weeks and have missed votes.

“The US government also faces a shutdown if it does not extend a spending deal beyond December 22. While the tax bill is likely to be passed and a government shutdown is also likely to be averted, both these concerns have to be assuaged before the dollar can rise,” Yamamato said.

The dollar also failed to get support from subdued US Treasury yields. The long-term Treasury yield has been confined to a narrow 2.34-2.42 percent range over the past week.

“As long as US yields don’t climb higher, the dollar cannot mount a sustained rise. The market only sees the Federal Reserve raising rates about twice next year, rather than the three hikes the Fed projected,” said Koji Fukaya, president of FPG Securities in Tokyo. “The debt market may need more convincing than three hikes are in the works in 2018,” he said. The euro was little changed at $1.1758 after slipping 0.2 percent on Friday.

On Friday, Germany’s Social Democrats agreed to open exploratory talks on forming a government with Chancellor Angela Merkel, providing a chance to end a rare period of political deadlock in Europe’s largest economy.

The pound remained on the defensive after sliding about 1 percent against the dollar on Friday. –