Investing.com - The dollar held on to modest gains against a currency basket on Tuesday, underpinned by hopes for major tax cuts in the U.S., while sterling fell as talks on the UK’s exit from the European Union remained deadlocked.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.14% to 93.18 by 08:34 AM ET (13:34 GMT).
The dollar rose Monday after the U.S. Senate passed a tax overhaul package over the weekend.
Demand for the dollar continued to be supported by expectations that tax cuts for corporations will stimulate the U.S. economy, and also drive Treasury yields higher, as the government becomes more dependent on debt due to reduced tax income.
Some investors also believe the boost to the economy will prompt the Federal Reserve to raise interest rates at a faster pace. Expectations of higher rates tend to boost the dollar, as they make the U.S. currency more attractive to yield-seeking investors.
Republicans are aiming to send a final tax bill to the White House before Christmas, with the House and Senate working to reconcile separate versions of the plan.
The dollar was higher against the yen, with USD/JPY rising 0.19% to 112.61.
The euro slid lower, with EUR/USD losing 0.17% to trade at 1.1845.
Sterling pared back losses but remained lower on the day, with GBP/USD last at 1.3433 after an attempt to reach an agreement with the EU on the Irish border failed.
Sterling found some support following report that British Prime Minister Theresa May could return to Brussels before then end of the week in the hope of reaching an agreement.
But the pound remained under pressure after data showing that the UK service sector lost some momentum in in November, while inflation pressures continued to increase.
The pound remained lower against the euro, with EUR/GBP up 0.19% at 0.8818, off an earlier high of 0.8867.