Dollar gives up gains on doubts about passage of tax bill

Key Points
  • Two Senators want changes to support tax overhaul.
  • ECB raises growth outlook, keeps stimulus pledge.
Matt Cardy | Getty Images

The U.S. dollar gave up earlier gains on Thursday after two lawmakers were reported to seek changes to proposed legislation to overhaul the U.S. tax code in order to garner their support.

U.S. Republican Senator Mike Lee has not decided whether to support a Republican tax bill and wants changes to the child tax credit, an aide to the lawmaker said on Thursday.

"Both Lee and Republican Senator Marco Rubio want more of the proposed child tax credit to be refundable," Conn Carroll, Lee's communications director said, adding Lee is "undecided on the tax bill as currently written."

Many investors are betting that tax changes will help stimulate the economy and boost growth.

"Markets want to see tax reform," said Steven Englander, head of research and strategy at Rafiki Capital Management in New York.

Tuesday's victory by Democrat Doug Jones for a U.S. Senate seat in Alabama further narrows the Republican Senate majority and may make it more difficult to pass tax legislation if negotiations are pushed into next year.

The bill needs a simple majority to pass in the Senate, in which Republicans hold 52 of the 100 seats and no Democrats are expected to support it.

There is a high expectation that it will get passed but you also know that they dont have much wiggle room in case something goes wrong, Englander said.

The dollar index against a basket of six major currencies was unchanged on the day at 93.431, after earlier rising to 93.759.

The greenback had earlier gained against the euro after the European Central Bank raised growth and inflation forecasts for the euro area, but stuck with its pledge to provide stimulus for as long as needed.

"ECB President Mario Draghi is, frustratingly, on the one hand saying that the progress we have achieved and expect to achieve is contingent on continued accommodation, which doesn't speak to a central banker that's ready to pull the rug away from QE," said Richard Franulovich, a senior currency strategist at Westpac Banking Corporation in New York.

But by the same token he is growing increasingly convinced that the recovery is broadening and more sustainable, and hes got growing confidence that they can hit their inflation forecasts, so there is enough there to keep euro trapped in current ranges Franulovich added.

The euro has held in a range between $1.196 and $1.172 against the greenback since mid-November, it was last down 0.25 percent at 1.1795.

The dollar index gained slightly, up 0.03 at 93.46.