CURRENCIES: Dollar Grinds Around 3-month High On Hopes For New Fed Chair, GOP Tax Package

By Carla Mozee and Sara Sjolin, MarketWatch Features Dow Jones Newswires

U.K. pound rises on prospect of historic BOE rate hike

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A key U.S. dollar gauge slipped Thursday, hovering around a more than three-month high, as attention focused on the expected unveiling of the next head of the U.S. Federal Reserve and a House Republican tax bill.

In particular, the greenback was lower against the pound, as investors waited to hear if the Bank of England will raise interest rates for the first time in 10 years.

The ICE Dollar Index , which measures the buck against its six rivals, fell 0.2% to 94.6300, but was still around its highest since last July. The index on Wednesday rose 0.3%, according to FactSet data.

What's in focus for the dollar?

U.S. President Donald Trump is widely expected to say he's chosen current Federal Reserve Governor Jerome Powell to be the next chairman (http://www.marketwatch.com/story/white-house-has-informed-powell-he-will-be-next-fed-chief-report-2017-11-01) of the central bank. That has dashed hopes that the more hawkish John Taylor, an economics professor at Stanford University, would be chosen to succeed Fed Chairwoman Janet Yellen.

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In addition, the Republican-led tax bill is slated to arrive, after being postponed one day (http://www.marketwatch.com/story/house-gop-delays-tax-bill-plans-to-keep-top-individual-rate-of-396-2017-10-31) to iron out unresolved issues. Media reports said the Republicans were running into difficulties reaching consensus on the tax cuts and that the expected corporate tax cuts to 20% from 35% would only be temporary (http://www.marketwatch.com/story/report-that-us-corporate-tax-cut-could-be-temporary-hits-stock-futures-dollar-2017-11-02).

See:8 most important things to know about the GOP tax plan (http://www.marketwatch.com/story/8-most-important-things-to-know-about-the-gop-tax-plan-2017-11-01)

"We expect market focus to fall mainly on two areas: how low and how quickly the corporate tax will be reduced, and whether the plan will include a one-time repatriation of corporate cash held abroad at a reduced rate," said Charalambos Pissouros, IronFX's senior analyst, in a note.

"If the proposed rates on these subjects are relatively low (around 20% for corporate tax and 10% for repatriation), then both U.S. stocks and the U.S. dollar could surge," he said.

U.S. equity markets have been supported by the prospect of the passage of tax reforms, including corporate tax cuts, in Washington.

Pound and the BOE rate decision

The Bank of England is widely expected to raise its benchmark interest rate to 0.5% from the current record low of 0.25%. A statement from the Monetary Policy Committee is due at 8 a.m. Eastern Time, followed by an 8:30 a.m. Eastern press conference with Gov. Mark Carney.

Before the decision, sterling traded at $1.3214, down from $1.3246 late Wednesday in New York. Against the euro, the U.K. currency fell to EUR1.1340, from EUR1.1399 in the previous session.

Read:5 things investors need to know as the Bank of England prepares for historic rate hike (http://www.marketwatch.com/story/5-things-investors-need-to-know-as-the-bank-of-england-prepares-for-historic-rate-hike-2017-10-31)

"Sterling's reaction on a 9-0 vote in favor of a rate increase will differ a lot from 5-4. If the BOE decides to keep policy unchanged, sterling would come under pressure, unless the BOE sends a clear message for a rate hike in December," said Fawad Razaqzada, market analyst at Forex.com, in a note.

"Trading the BOE will prove to be a tricky one, given the many possible scenarios; however, I think the central bank will hike rates today and reassure markets that further monetary policy tightening will remain limited for the foreseeable future," he said.

Elsewhere in currency trading

The euro traded at $1.1655, slightly higher than $1.1648.

Against the Japanese yen , the dollar bought Yen114.08, compared with Yen114.17 in the previous session. The dollar's 0.5% gain against the yen on Wednesday was its biggest since Oct. 20, FactSet data showed.

Against Switzerland's currency , the dollar changed hands at 0.9992 francs versus 1.0032 francs.

Bitcoin roars

Bitcoin on Thursday soared to a fresh record, leaping above $7,300 (http://www.marketwatch.com/story/bitcoin-breaks-above-7300-to-set-fresh-all-time-high-then-pares-gain-2017-11-02) and underlining what has been a rapid year-to-date rise for the world's No. 1 encrypted currency.

A single bitcoin was recently trading up 3% at $6,934, according to research and data site CoinDesk.com. The cryptocurrency surged as high as $7,355 intraday and has scored a nearly 650% year-to-date advance.

(END) Dow Jones Newswires

November 02, 2017 07:58 ET (11:58 GMT)