Dollar Gains as Senate Budget Vote Lifts Tax-Cut Hopes

The dollar hit its highest level of the month after the U.S. Senate passed a budget blueprint, raising hopes for a Republican-led tax overhaul.

The budget was seen as a key hurdle in the process of revamping the tax code. The failure of prior legislative efforts--notably regarding health care--had created doubts about the ability of President Donald Trump and his fellow Republicans in Congress to enact his agenda.

Those doubts had contributed to the pressure on the dollar, which in September briefly hit its lowest levels since early 2015. But it jumped after the 51-49 Senate vote, which opened up a process under which the Senate will be able to pass tax legislation without requiring any votes from Democrats.

The Wall Street Journal Dollar Index, a measure of the dollar against 16 other currencies, was up 0.4% around midday in Asia, with the biggest gains against a pair of currencies deemed havens: the Japanese yen and Swiss franc. Asian stocks also rose to session highs after the vote.

The gains are "all about the optimism that Trump tax cuts can add growth to the U.S. economy," said Greg McKenna, chief market strategist at Australian forex broker AxiTrader.

The dollar had been weak Thursday, with the WSJ index 0.3% lower. That left it down 6.9% for the year 10% since December's postelection top at 10%.

The dollar was hurt by declines in government-debt yields. Some investors sought protection from risk as tensions rose further between Spain and the Catalan independence movement. But yields turned around after the Senate vote, with the 10-year Treasury yield climbing to 2.36% at one point from 2.323% late Thursday in New York.

Some analysts urged caution about Friday's dollar gains.

Peter Chia Siong, a forex strategist at broker UOB Kay Hian in Singapore, said the dollar's near-term direction "hinges not only on the tax reforms" but who Mr. Trump will tap to lead the Federal Reserve for the coming four years.

News reports that he is leaning toward Fed Gov. Jerome Powell weighed on the dollar Thursday as he is considered a dovish candidate. The White House has indicated Mr. Trump will make a decision before leaving for a trip to Asia next month.

"The stronger dollar doesn't sit well with the U.S. administration's goal to encourage exports," said Stephen Innes, head of trading for Asia at Oanda. "They don't want to tip the apple cart against the economy."

Write to Kenan Machado at

(END) Dow Jones Newswires

October 20, 2017 00:42 ET (04:42 GMT)