The dollar eased versus the yen on Tuesday and remained within sight of a two-month low, with the near-term focus on a possible Senate vote on a U.S. tax plan later in the week.
The dollar eased versus the yen on Tuesday and remained within sight of a two-month low, with the near-term focus on a possible Senate vote on a U.S. tax plan later in the week. Market participants are also waiting for a confirmation hearing on Tuesday for Federal Reserve chair nominee Jerome Powell, hoping for further clues on the outlook for the Fed’s monetary policy. In remarks prepared for the hearing released by the Fed on Monday, Powell defended the U.S. central bank’s use of broad-crisis fighting powers. Regarding the Fed’s current monetary policy, Powell said in the prepared remarks: “We expect interest rates to rise somewhat further and the size of our balance sheet to gradually shrink”.
The dollar eased 0.1 percent to 111.00 yen, hovering near a low of 110.85 yen set on Monday, its weakest level since mid-September. The trough hit on Monday marked a drop of about 3.4 percent from the dollar’s near eight-month high of 114.735 yen set in early November. Worries about potential delays in the implementation of U.S. tax cuts and the possibility of proposals being weakened have weighed on the greenback in recent weeks. At the same time, the yen has been supported as risk sentiment has faltered, partly due to weakness in Chinese equities in recent trading sessions.
“The China wobble is not helping global sentiment,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore. “China clamping down on … a lot of the shadow banking is a good thing for the long-term, but obviously, there’s going to be a bit of a meltdown in the short term,” Innes said. Since the low-yielding yen is often used as a funding currency for investment in riskier assets, it tends to be bought back when risk sentiment sours. Against a basket of six major currencies, the dollar slipped 0.1 percent to 92.841, having set a two-month low of 92.496 on Monday.
The dollar has been hampered recently by uncertainty over the prospects for U.S. tax reforms, including tax cuts. Republicans are hurrying to bring the U.S. Senate version of their tax bill to a Senate vote, possibly as soon as Thursday.
But Senate Republican leaders did not appear on Monday to have enough votes to pass the legislation, with about a half-dozen Republicans viewed as potential “no” votes. Republican Senator Ron Johnson said he would vote against the bill at a Budget Committee hearing on Tuesday unless his concerns are resolved, according to his office.
Republican Senator Bob Corker said on Monday that he could oppose his party’s tax bill over deficit worries, but added that Republicans were working to resolve his concerns. The euro edged up 0.1 percent to $1.1907, after scaling a two-month peak at $1.1961 on Monday.