Currencies: Dollar drops as fears build that tax reform plans will drag

The U.S. dollar was under pressure on Wednesday as concerns over the progress of a U.S. tax overhaul intensified, driving investors into perceived safer havens such as the Japanese yen.

What are currencies doing?

Sticking to a downward trend, the ICE U.S. Dollar Index DXY, -0.33%  was off 0.3% at 93.537. The broader WSJ Dollar Index BUXX, -0.27%  shed 0.2% to 87.14.

The euro EURUSD, +0.3899%  rose to $1.1840 against the dollar from $1.1788 late Tuesday in New York. On Tuesday, the shared currency rallied to a three-week high of $1.1795, sending it back to levels not seen since the European Central Bank’s dovish tapering action sent it lower three weeks ago.

Against the Japanese yen USDJPY, -0.63% the dollar bought ¥112.73, tumbling from ¥113.46 late Tuesday.

The greenback also slipped against the Swiss franc USDCHF, -0.3134%  , buying 0.9865 francs versus 0.9893 francs late Tuesday.

The dollar wasn’t weak across the board. Against its Australian counterpart AUDUSD, -0.4455%  , the U.S. dollar rose, with one Aussie worth $0.7592 from $0.7632 late Tuesday. That’s after Australian wage growth rose by less than expected in the third quarter, disappointing economists who expected a bump in minimum wages would help boost that number.

The pound GBPUSD, -0.0152%  was little changed at $1.3166 from $1.31165 late Tuesday. Sterling still faces political risks as Prime Minister Theresa May’s government continues to be plagued by a no-confidence signal within the party.

See: Is British leader Theresa May on her way out? Why that’s the fear—and why it matters

Also check out: Brexit hard-liners are selling England by the pound

What’s moving markets?

Investors are increasingly worried about the prospect of getting a U.S. tax overhaul done and dusted by the end of the year. A report Tuesday indicated that Republican senators are seriously consdering adding a repeal of Obamacare’s individual insurance mandate to a new version of their tax bill.

Also read: Euro bulls try for a comeback on U.S. tax-cut worries

The dollar also got a lift as oil prices CLZ7, -1.26%  fell another 1% on Wednesday after the American Petroleum Institute late Tuesday reported a surprising buildup in U.S. inventories of both crude oil and gasoline. The API data comes ahead of important Energy Information Administration data due Wednesday.

Chicago Fed President Charles Evans said inflation has been too low for too long and the U.S. central bank has to alter its communications with the markets to convince investors the central bank is willing to let it run hotter than the 2% target. He made the comments Wednesday in a speech at the UBS European Conference in London.

Boston Fed President Eric Rosengren will give a speech at Northeastern University’s economic policy forum in Boston at 4:10 p.m. Eastern

See: Here are the 7 Fed speeches that matter this week

Read: Fed’s Yellen: It’s confusing with so many voices on the FOMC

What strategists are saying?

“The bullish outlook for the dollar is coming under pressure as a reduction in risk appetite and further concerns over tax reform are weighing on Treasury yields,” said Richard Perry, a Hantec Markets analyst, in a note to clients.

“Dollar bulls are currently lacking the inspiration to make a move, but could be motivated … if U.S. consumer inflation and retail sales data exceed market expectations. A rise in inflation and retail sales is likely to boost sentiment toward the U.S. economy. ultimately supporting the dollar,” said Lukman Otunuga, research analyst at FXTM, in a note to clients.

He said the dollar’s sharp fall Tuesday shows it remains sensitive to expectations over proposed tax reforms.

What are the data?

Consumer prices retail sales for October and the Empire State manufacturing index for November are all due at 8:30 a.m. Eastern Time. Economists polled by MarketWatch expect consumer prices to rise 0.1% and retail sales to come in flat.

At 10 a.m. Eastern, business inventories for September will be released.

Read MarketWatch’s Economic preview

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