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(Bloomberg) -- The dollar climbed and the 10-year Treasury yield approached 2.40 percent on optimism U.S. President Donald Trump is close to pulling off a tax overhaul and may soon select the next Federal Reserve chief.

The Bloomberg Dollar Spot Index extended gains from Friday when it closed above its 100-day moving average for the first time since March. Trump said he’s considering Stanford University economist John Taylor -- seen as the most hawkish candidate -- and Governor Jerome Powell for the top job at the Fed while indicating Chair Janet Yellen remains in the running. 

“The U.S. dollar is finding fresh yield support on optimism over a deal to cut corporate taxes and the perception that John Taylor remains a strong contender for Fed chair,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The 2.40 percent level remains critical for the 10-year Treasury note, so the dollar is not yet off to the races.”

The greenback rose to a three-month high against the yen after Japan’s ruling coalition retained its two-thirds majority in the lower house at Sunday’s election, ensuring continuity of the central bank’s loose monetary policies.

  • BBDXY gains 0.1%; rose earlier by as much as 0.2% to the highest level since Oct. 6 Treasury 10-year yield little changed at 2.38% after climbing 7bps Friday Hedge funds trimmed their net short positions on the greenback by 58,005 contracts to 119,309, the biggest bullish shift since March, data from the Commodity Futures Trading Commission show
  • USD/JPY rises 0.3% to 113.83 after touching 114.10, highest since July 11 “The LDP’s big win removes lingering uncertainty over the durability of Abenomics, including the BOJ’s commitment to loose policy despite other central banks tapping the brakes a little,” Westpac’s Callow says
  • EUR/USD slips 0.1% to 1.1769 Catalan separatists meet Monday to craft their reply to Prime Minister Mariano Rajoy after the Spanish leader announced an unprecedented barrage of measures to stamp his authority on the rebel region ECB will halve monthly bond purchases to 30 billion euros next year, stretching out the program’s remaining capacity as it waits for inflation to pick up, according to a Bloomberg survey of economists before the Oct. 26 decision; policy makers will keep buying for about nine months

--With assistance from Michael G. Wilson

To contact the reporter on this story: Netty Ismail in Singapore at nismail3@bloomberg.net.

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Patricia Lui

©2017 Bloomberg L.P.

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