* Fed news and tax bill fuel profit-taking after rally
* Graphic: World FX rates in 2017 - tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Nov 2 (Reuters) - The dollar slipped against a broad basket of currencies on Thursday as investors took profits after the U.S. Federal Reserve left interest rates unchanged on Wednesday, as expected, with markets widely expecting a rate hike at its next meeting.
With uncertainty around the next U.S. Federal Reserve chair also winding down as U.S. President Donald Trump prepared to nominate Governor Jerome Powell, seen as less hawkish than other candidates, markets waited for fresh data to push the dollar .
“Powell is pretty much a Republican Janet Yellen; he offers continuity at the Fed, which means a cautious approach to monetary policy, particularly as it comes to tightening,” said Alvin Tan, an FX strategist at Societe Generale in London.
The dollar index fell 0.2 percent on the day to 94.71 after rising to a 3-1/12 month high of 95.150 last Friday.
The Fed raised expectations for a year-end rate increase by highlighting “solid” economic growth and a strengthening labour market.
A robust ADP report on U.S. employment on Thursday was the latest in a list of strong indicators that have backed the Fed’s quest to normalise monetary policy and threw the spotlight on the monthly payrolls data due on Friday.
Non-farm U.S. job numbers are expected to have bounced back in October after September’s drop.
But some market watchers pointed to the shrinking interest rate differentials between 10-year and two-year U.S. Treasury yields as a sign that the dollar may be peaking with the U.S. economy entering a late-cycle rally.
The outcome of the U.S. tax bill also disappointed some investors.
After an embarrassing one-day postponement of the bill’s unveiling on Wednesday, U.S. lawmakers have made plans for a measure that will seek up to $6 trillion in tax cuts over 10 years.
Markets have priced in another 25-basis-point rate hike at a policy meeting next month, according to CME’s Fedwatch tool.
“The dollar has been difficult to trade, with more downside risks in store after it has failed to react strongly to the positive headlines about Powell’s appointment or the tax reform bills,” said John Marley, head of FX strategy at Infinity International, a currency risk management firm.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Reporting by Saikat Chatterjee and Polina Ivanova; Editing by David Goodman