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Dollar rallies on stronger risk appetite, bitcoin drops to $16,800

Key Points
  • Dollar/yen sheds losses as equities rebound
  • Underlying optimism on US tax reform supports dollar
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The dollar rose to a two-week high against a basket of currencies on Thursday, recovering losses against the yen, on stronger risk appetite across markets and on optimism the United States will successfully push through a tax reform program.

The greenback slipped against the safe-haven yen on Wednesday after U.S. President Donald Trump said he would recognize Jerusalem as the capital of Israel, a move that imperiled Middle East peace efforts and provoked widespread condemnation.

As global stock prices edged higher on Thursday after three days of losses, investors bought back the dollar, which gained 0.55 percent at 112.90 .

President Trump: Jerusalem is Israel's capital

Markets are now focused on Friday's U.S. non-farm payrolls report, with investors looking at 200,000 new jobs for November, according to a Reuters poll.

"Tomorrow's jobs report will play a significant factor in keeping the (dollar) rally alive and heightening hopes for an early 2018 rate hike," said Lennon Sweeting, chief market strategist at XE in Toronto.

Against a basket of currencies, the dollar hit a two-week high of 93.745. It was last up 0.01 percent at 93.62. U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.

"Passage of U.S. tax reform is the main upside risk to economic growth, with far-reaching effects," wrote BofA Merrill Lynch analysts in a 2018 outlook.

But although most investors see the tax reform as a pro-growth policy that should support the dollar, not all analysts agree it would be straightforwardly dollar-positive.

"The corporate tax reform has the potential to have a significantly positive effect on the greenback, but due to other parts of the reform - those that are aimed at preventing tax base erosion," wrote Commerzbank currency strategists in a note to clients.

22% corporate tax rate is on the table: Key House GOP

The move higher in dollar/yen came, meanwhile, amid a surge in Tokyo shares, which had slumped the previous day on Middle East concerns. But considering the Nikkei's gains - the index was up almost 1.5 percent - the dollar's rise versus the yen appeared limited.

The euro slipped to a two-week low of $1.1776 against a stronger dollar. It was last slightly down on the day at $1.1788.

Bitcoin soared to a record high mid-session, pushing past $19,000 on the Coinbase exchange and continuing a surge from less than $1,000 at the beginning of the year. It was last down at $16,800.