Dollar Slips On Fears Over U.s. Tax Reform Delay

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LONDON (Reuters) – The dollar slipped against most major currencies on Wednesday, weighed down by worries over possible delays to Donald Trump’s tax reform plan and evidence of the U.S. president’s waning popularity.

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

The greenback had risen to a 3-1/2-month high against a basket of currencies in recent weeks, helped by expectations that Trump’s administration would deliver tax cuts, after the U.S. Senate approved a budget blueprint for such reforms.

But the Washington Post, citing unidentified sources, reported on Tuesday that Senate Republican leaders are considering a one-year delay in the implementation of a major corporate tax cut to comply with Senate rules.

Any potential delay in the implementation of tax cuts, or the possibility of proposed reforms being watered down, would tend to work against the U.S. currency, analysts said.

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“The initial phases of discussions within the House have brought up a lot of divisions and problems, so the House version itself is going to change before we’ve even got wind of what the Senate version is going to be,” said MUFG’s European head of global markets research in London, Derek Halpenny.

“If the story is true that they’re considering a delay of one year to the corporate tax cut, those big differences will need to be sorted, so we continue to be dubious on that proceeding.”

Halpenny added that a Wall Street Journal poll on Tuesday showing Trump’s approval rating falling sharply, even in counties that had voted for him, was adding to a picture of an increasingly unpopular president, with that unpopularity potentially emboldening members of Congress to oppose his plans.

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The dollar was down 0.1 percent against its basket at 94.797 and down 0.2 percent against the euro, which was trading at $1.1606.

The currency has slipped steadily over the past few weeks, pressured by the divergence in the monetary policies of the European Central Bank and the U.S. Federal Reserve.

“The ECB is likely to be generally pleased, as it has managed to reduce its asset purchasing programme further without this causing major distortions on the market – i.e. a strong rise in yields and euro exchange rates,”

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“With the exception of a reduced monthly purchasing volume they did not accept any signal that the purchasing programme might end imminently,” wrote Commerzbank analysts in a note to clients.

“Until an end of the purchasing programme is in sight the first rate hike seems an increasingly distant prospect. Bad news for euro bulls,” they added.

The dollar was also down 0.2 percent at 113.75 yen, falling from an eight-month high of 114.735 touched on Monday, and was down 0.1 percent against a basket of six currencies as U.S. Treasury yields continued to decline.
Jemima Kelly
Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Matthew Mpoke Bigg

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