Investing.com - The dollar was down against the pound and the euro, but up against the yen on Tuesday, as anxious forex traders awaited the outcome of this week's Federal Reserve meeting.
The EUR/USD showed surprising firmness as Italian investors started responding to last week's election news by announcing restructuring plans.
Rising inflation is supporting the GBP/USD. The USD/JPY settled down a bit for the day.
But a bit of a retreat on aggressive tax cut plans,articulated by Sen. Majority Leader Mitch McConnell (R-Ky.) dampened enthusiasm for the dollar. McConnell said that President-elect Trump's income tax cuts had to be "revenue neutral," e.g. not impact the deficit. That has economists worried that the huge benefits expected by slashed taxes will not arrive, as promised, by Trump during the election and the transition.
"Mitch McConnell is focusing on infrastructure spending. He doesn't want it to be like Obama's stimulus," said Art Laffer, an economist who advised President Reagan, from the White House Economic Council, on Tuesday. "Our first tax cut with Reagan was not 'revenue neutral.' The 1986 tax cut was spectacular. We went from 14 brackets to two brackets. This kind of thing can be done really well. The rhetoric behind it is a worry (from McConnell). Trump's going to get the corporate rate down and get rid of the death tax. That's good symbolically."
According to Laffer, during an interview on Fox News, Trump's planned huge tax cuts, bringing rates down to 15% for corporations from 35%, will get the U.S. economy booming again. "This is like the Kemp-Roth rate cuts. We need to do that right away. When the economy is booming, you can cut spending. Don't start with your weakest hand."