NEW YORK (Reuters) - The dollar fell to its lowest in a week against a basket of major currencies on Thursday after Republicans in the U.S. House of Representatives released proposals to overhaul the tax code.
The greenback recovered some of its losses in afternoon U.S. trading, but remained lower and had minimal reaction to the announcement Federal Reserve Governor Jerome Powell was President Donald Trump's pick to be the next chair of the Fed.
The dollar edged up against the yen and the dollar index, which tracks the currency against six major rivals, during Powell's comments, but ultimately surrendered those gains and remained in the red for the day.
The tax reform legislation called for slashing corporate tax rates to 20 percent from 35 percent and reducing the number of tax brackets for individuals, according to a summary document.
Analysts said the proposals put forth were both unlikely to gather sufficient support in Congress or to have significant impact on the U.S. economy. "Massive" tax cuts had been a major Trump campaign promise.
"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 is expected to increase spending and drive inflation and U.S. interest rates higher, making the dollar more attractive.
The dollar index <.DXY> fell to 94.411, its lowest since Oct. 26. It had earlier risen, almost touching its highest since mid-July.
The euro <EUR=> hit its highest in a week against the dollar, rising to $1.1687.
The dollar also hit a session low against the Japanese yen <JPY=> after the tax cut proposal's release, falling to 113.55 yen.
The greenback posted major gains against the British pound <GBP=>. Sterling had its largest one-day fall against the dollar since June after the Bank of England raised interest rates for the first time in more than a decade but said it sees only gradual rises ahead.
Against the euro <EURGBP=D4>, sterling fell almost 2 percent for its biggest one-day loss since October 2016.
The BoE voted 7-2 to increase its benchmark Bank Rate to 0.50 percent from 0.25 percent, but it expected only "very gradual" further increases would be needed over the next three years.
(Reporting by Dion Rabouin; Editing by Susan Thomas and Chris Reese)
