Dollar eases from highs on Trump tax plan disappointment
The U.S. dollar shed gains against major rivals on Wednesday after a White House tax reform announcement was viewed as lacking in new details, while the peso and Canadian dollar sank on reports that the U.S. is considering withdrawing from the North American Free Trade Agreement.
U.S. President Donald Trump's plan would cut the income tax rate paid by public corporations to 15 percent from 35 percent and reduce the top tax rate assessed on pass-through businesses, including small partnerships and sole proprietorships, to 15 percent from 39.6 percent.
The dollar hit its highest level of the month against the yen of 111.77 yen JPY= just before the plan's unveiling, but pared gains after the announcement and last stood little changed against the Japanese currency at 111.15.
Analysts said traders were disappointed by the lack of new details about the tax reform plan and on skepticism that any comprehensive tax changes will be approved by the House and Senate.
"There was a bit of 'buy the rumor sell the fact,'" said Vassili Serebriakov, foreign exchange strategist at Credit Agricole in New York, in reference to the dollar's rise ahead of the statement and later moderation.
"It’s a long path toward this becoming a policy change, and markets recognize that," he added.
The euro also trimmed losses against the dollar and was last down just 0.2 percent at $1.0900 after having fallen as much as 0.6 percent against the greenback to a session low of $1.0857 earlier in the day.
The euro had touched $1.0950 in early trading to match Tuesday's 5-1/2-month high before facing selling pressure on hopes that the tax announcement would boost the dollar.
The dollar surged about 2.4 percent against the Mexican peso to a more than one-month high of 19.2922 pesos MXN= and rose as much as 0.4 percent against the Canadian dollar to C$1.3623 CAD=D4 after reports that the United States was readying an executive order to withdraw from the North American Free Trade Agreement (NAFTA), a U.S., Mexico and Canada trade pact.
A senior Trump administration official confirmed the possibility of the order, which was first reported by Politico,
"It just underscores how important the American economy is to both Mexico and Canada," said Joe Manimbo, senior market analyst with Western Union Business Solutions in Washington.
The dollar index, which measures the greenback against a basket of six major rivals, was last up 0.2 percent at 99.018 .DXY.