The US dollar traded higher on Monday as it found support on the US Senate’s approval of a major tax overhaul at the weekend.
Senate Republicans passed the most extensive tax cuts bill in a 51-49 vote on Saturday, moving US President Donald Trump a step closer to his first legislative victory.
In what would be the biggest tax overhaul since the 1980s, Republicans want to add $1.4 trillion over the next 10 years to the $20 trillion debt to fund changes that they believed would further improve an already growing economy.
However, a Senate committee data has estimated that the plan would increase budget deficit by $1 trillion, despite of the economic growth the bill is expected to make over a 10-year period.
The Senate will now have to reconcile its legislation with the one that was passed a month ago by the House of Representatives before it can be signed into law by the president. Trump wants the measures passed by the end of the year.
Following the Senate’s approval, the US dollar index gained 0.4 percent to $93.18, driven by expectations that tax cuts would boost the nation’s economy as well as raise Treasury yields up as the government becomes more reliant on debt as a result of lower tax income.
The currency edged higher on Monday as the 10-year bond yield increased 0.9 percent to 2.388.
The greenback hits a 2-1/2 week high against the yen, climbing 0.6 percent to 112.94 after rising to 112.98, its highest level since November 17.
The dollar was also up by 0.09 percent to 1.2696 against it Canadian counterpart, while it rose 0.6 percent to 0.9829 against the Swiss franc.
FPG Securities Co Ltd.’s president said that the greenback was only making calculated gains as the currency market was still wary of the US tax reforms, adding that the market is likely to be more optimistic on the idea of the tax bill’s eventual passage.
Senior trader Stephen Innes stated that if the legislation gets approved immediately, there could be another dollar rally, but if it takes longer than necessary, the currency might have a sell-off.
Other major currencies traded lower against the US dollar on Monday, with investors turning their attention to Brexit talks between British Prime Minister Theresa May and European Union (EU) President Jean-Claude Juncker.
This meeting marks as a very crucial deadline for London to provide enough progress in its separation offer as set by European Council President Donald Tusk.
The UK is seeking to get the support of the other 27 EU states at the leader’s summit on December 14 as they aim to move forward from the separation to the future relationship.
The euro slipped 0.3 percent to 1.1856 against the dollar, while the sterling lost 0.3 percent to 1.3428.
Other high earning currencies, including the Aussie dropped 0.1 percent to 0.7603, whereas the New Zealand dollar fell 0.3 percent to 0.6864 against its American counterpart.
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