Dollar Rises as Tax-Bill Euphoria Offsets Soft Services Data
The dollar rose against a basket of currencies on Tuesday as ongoing optimism over the progress of tax reform offset weaker-than-estimated service sector data.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.29% at 93.32.
With the Senate and House of Representatives set to get talks underway this week to reconciled their respective bills, investors remained optimistic that the final bill will reach President Donald Trump for approval before year-end.
The tax cuts, widely viewed as inflationary, continued to spur an uptick in the dollar, offsetting economic data showing US services activity in November fell short of expectations.
The Institute for Supply Management's non-manufacturing purchasing managers' index showed a reading of 57.4 for November compared to 60.1 in October, missing economists' expectations for a reading of 59.
Some market participants warned, however, that markets could behave “irrationally” amid ongoing changes to tax bill.
“Expect the next two or three days for the market to behave irrationally. A lot of changes are being made to the tax bill and it obviously impacts various sectors in different ways,” said Massud Ghaussy, director at Nasdaq Advisory Services.
For the second day in a row, euro weakness supported an uptick in the dollar as the single currency struggled to pare losses despite upbeat services PMI data.
GBP/USD fell 0.24% to $1.344, as the pair continued to come under pressure a day after news reports emerged that Britain and the EU failed to reach an agreement to move to the next stage of brexit talks.
USD/CAD rose 0.11% to $1.2690 as traders looked ahead to the Bank of Canada rate decision this week, widely expected to remain unchanged at 1%.
The positive sentiment on riskier assets, meanwhile, helped the greenback add to gains against both the safe-haven yen and Swiss franc.