The dollar climbed to a one-month high against a basket of currencies and is on track to post its best weekly performance this year on hopes that U.S. President Donald Trump's administration may be making progress on tax reforms.
"We are in correction mode on the dollar as there is really nothing fundamental that has changed for the U.S. outlook and the ambitious tax plan lacks a lot of details," said Viraj Patel, an FX strategist at ING Bank in London.
The dollar was trading 0.24 percent higher against a basket of currencies. It has gained 2.5 percent since hitting a 2 1/2-year low of 91.35 in mid-September.
Trump on Wednesday proposed the biggest U.S. tax overhaul in three decades, offering to cut taxes for most Americans but prompting criticism that the plan favours the rich and companies and could widen the U.S. budget deficit.
The proposal faces an uphill battle in the U.S. Congress, with Trump's own Republican Party divided over it and Democrats hostile.
But the unveiling of the plan, along with recent hawkish rhetoric from the U.S. central bank, has raised the likelihood of a U.S. rate increase by December to 70 percent compared with less than a third a month earlier. Speculators began to unwind short dollar bets, which had swollen to multi-year highs.
"This is probably the best time for the U.S. to raise interest rates, as short-term growth indicators look robust and market volatility is near record lows and financial markets healthy and near record highs," said Yassir Benjelloun Touimi, a portfolio manager at Dalton Strategic Partnership LLP in London.
