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Reuters

Business

Gertrude Chavez-Dreyfuss

Dollar climbs to 3-week peak versus yen on U.S. tax reform prospects

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

NEW YORK (Reuters) - The dollar rose on Monday, hitting a three-week high versus the yen after the U.S. Senate approved a major tax overhaul over the weekend that aims to cut taxes for businesses, while proposing a mixed package of changes for individual Americans.

"Dollar bulls are pinning their hopes on the sweeping tax deal leading to a more rapid pace of interest rate hikes from the Federal Reserve," said Jake Spark, U.S. corporate hedging manager at Western Union Business Solutions, in Washington.

The Republican tax legislation would be the largest change to U.S. tax laws since the 1980s. Republicans want to add $1.4 trillion over 10 years to the $20 trillion national debt to finance changes that they say would further boost the economy.

Talks will begin, likely this week, between the Senate and the House of Representatives, which already approved its own version of the legislation, to reconcile their respective bills.

But Lennon Sweeting, chief market strategist at XE in Toronto, said he expects the dollar's gains to be capped by political concerns in Washington.

Former national security adviser Michael Flynn was the first member of Trump's administration to plead guilty to a crime uncovered by Special Counsel Robert Mueller’s investigation into Russian attempts to influence the 2016 U.S. election and potential collusion by Trump aides.

Some market participants were also skeptical about how significant the impact of the tax bill would be on U.S. growth.

Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London, said U.S. growth could rise by just 0.2 to 0.3 percent annually, not enough to persuade the Fed to raise rates at a faster pace.

The dollar rose to 113.08 yen <JPY=>, the highest since mid-November, and was last at 112.64, up 0.3 percent.

The euro, meanwhile, also fell against the dollar, down 0.3 percent at $1.1856 <EUR=>, pushing the dollar index to trade up 0.3 percent on the day at 93.181 <.DXY>

Investors are also focused this week on a key U.S. non-farm payrolls report, with analysts forecasting a 200,000 jobs gain for November versus 260,000 the previous month.

This would be the last employment report before the Fed holds its last policy meeting for the year next week and markets have already priced in a rate hike for that meeting.

However, currency markets expect the Fed to raise rates only slightly more than twice next year. Even though U.S. 10-year U.S. yields were higher on Monday, they remain effectively within a 15 basis-point range over the last two months.

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Currency bid prices at 3:08PM (2008 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar EUR= $1.1853 $1.1889 -0.30% +12.75% +1.1888 +1.1830

Dollar/Yen JPY= 112.5500 112.1000 +0.40% -3.70% +113.0800 +112.4200

Euro/Yen EURJPY= 133.44 133.46 -0.01% +8.36% +134.0300 +133.3300

Dollar/Swiss CHF= 0.9855 0.9763 +0.94% -3.17% +0.9867 +0.9785

Sterling/Dollar GBP= 1.3466 1.3470 -0.03% +9.16% +1.3538 +1.3420

Dollar/Canadian CAD= 1.2698 1.2681 +0.13% -5.45% +1.2726 +1.2656

Australian/Doll AUD= 0.7595 0.7609 -0.18% +5.27% +0.7613 +0.7580