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Dollar sags as U.S. yields slip over tax plan uncertainty

11/7/2017, 11:52:36 AMBasics of Trading
Dollar sags as U.S. yields slip over tax plan uncertainty

The dollar sagged on Tuesday, knocked away from an eight-month highs versus the yen down as Treasury yields slipped on uncertainty over whether the Republicans can pass their tax bill in a timely manner.

The dollar was little changed at 113.780 yen , having pulled back from 114.735 struck the previous day, its highest since mid-March.

The euro was steady at $1.1612 following its descent to a 10-day trough of $1.1580 overnight.

The greenback had been on the front foot after strong U.S. services and factory data issued just before the weekend backed expectations for the Federal Reserve to raise interest rates next month and tighten further in 2018.

But the currency sagged as such expectations failed to lift Treasury yields, which has seen the benchmark 10-year yield (US10YT=RR) slip steadily toward 2.30 percent after peaking at a seven-month high of 2.47 percent in late October.

"The dollar is lacking support from Treasury yields which have been declining on uncertainty over the U.S. tax bill and expectations that any rise in inflation would be slow," said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

"For the dollar to sustain its gains it will need the speedy passage of the tax bill before Thanksgiving Day (Nov. 23) to put a floor under Treasury yields."

Doubts over whether U.S. Republicans could pass their tax plan has helped bring down long-term Treasury yields as the uncertainty dims hopes for faster economic growth, and there are worries about the scale of borrowing needed to finance it.

The dollar index against a basket of six major currencies was a shade lower at 94.726 (DXY), slipping slightly from a 10-day peak of 95.077 reached on Monday.

The Australian dollar was little changed at $0.7688 after gaining about 0.5 percent the previous day against the broadly weaker dollar.

Immediate focus was on the Reserve Bank of Australia's (RBA) policy decision at 0330 GMT.

Of the 48 economists polled by Reuters, 47 expect the central bank to stand pat and keep its cash rate at a record low of 1.5 percent.

The RBA eased twice last year but has since held steady as it balances the risk of fuelling further borrowing in the country's red-hot property market against tepid inflation.

The New Zealand dollar was nearly flat at $0.6941 after gaining nearly 0.6 percent overnight to pull further away from a five-month low of $0.6818 reached at the end of October on political uncertainty.