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Dollar edges down as investors await tax bill, budget progress

Dollar edges down as investors await tax bill, budget progress

Wed Dec 06 2017


The dollar edged down on Wednesday, as concerns about a possible US government shutdown offset optimism about progress on tax reform legislation. The dollar index, which tracks the greenback against a basket of six major currencies, inched 0.1 per cent lower to 93.328.


The euro was steady on the day at $1.1825, while the dollar edged down 0.1 per cent against its Japanese counterpart to 112.43 yen. Sterling came under pressure on Wednesday after a report of a failed plot to kill the UK Prime Minister. Sky News said on Tuesday, citing sources, that a plot to assassinate Prime Minister Theresa May has been foiled.


In the US, the Republican-controlled House of Representatives voted on Monday to go to conference with the Senate to begin formal negotiations on the tax bill, with the Republican-led Senate expected to hold a similar conference vote later this week. But in the meantime, the possibility of a US government shutdown looms, if lawmakers fail to reach a budget accord this week. Government funding is set to expire Friday.


“I think they will avoid a shutdown, but there is concern about that,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo. “If a tax cut deal can be reached by the year-end, it should be positive for the dollar and the risk-taking behaviour of global investors, but until then, markets are in a wait-and-see-mode,” he said.


Expectations of higher US rates underpinned the dollar. Fed funds futures prices show that investors expect the US central bank to hike rates at its Dec. 12-13 meeting, with futures prices showing a zero percent chance of rates remaining at their current level of 1.00-1.25 per cent.


Also weighing on the pound was Prime Minister May's failure to clinch a deal to open talks on post-Brexit free trade with the European Union after a tentative pact with Dublin to keep EU rules in Northern Ireland angered her allies in Belfast. “Expectations for an early settlement at the Brexit discussions are fading,” said Mizuho's Yamamoto.


The pound was down 0.2 per cent at $1.3413, though it remained above its overnight low of $1.3370. Bitcoin was up 0.7 per cent at $11,752, after touching a record high of $11,850 overnight.



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Tuesday, December 04, 2018
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