* Dollar eases vs yen, but still not far from 3-month highs
* Reports of support for John Taylor as Fed chief
* Aussie dollar sags after lower-than expected Australia CPI
By Masayuki Kitano
SINGAPORE, Oct 25 (Reuters) - The dollar traded within sight of a three-month high against the yen on Wednesday, underpinned by reports of Republican senators’ support for John Taylor to become the next Federal Reserve chief.
Against a basket of six major currencies, the dollar stood at 93.970. The dollar index had risen to 94.017 on Monday, its highest level since Oct. 6.
The dollar last traded at 113.81 yen, down 0.1 percent on the day, but still not far from a three-month high of 114.10 yen set on Monday.
The Australian dollar fell 0.7 percent to $0.7723 at one point, its lowest level since mid-July, after Australia’s September-quarter consumer price index figures came in below market expectations, leading investors to further pare back the chance of an interest rate hike anytime soon.
The euro held steady at $1.1757, with the near term focus on Thursday’s European Central Bank policy meeting. The ECB is seen likely to announce that it will cut back its monthly bond purchases, probably from early next year.
U.S. President Donald Trump used a lunch with Senate Republicans on Tuesday to get their views on who he should tap to be the next leader of the Federal Reserve, according to senators who attended.
A source familiar with the matter said Trump polled the Republicans on whether they would prefer Stanford University economist John Taylor or current Fed Governor Jerome Powell for the job.
More senators preferred Taylor over Powell, the source said. Trump also said he was considering reappointing the current head of the U.S. central bank, Janet Yellen, the source said.
Taylor, a Stanford University economist, is seen as someone who may put the Fed on a path of faster interest rate increases. He favours a rule-based approach to setting rates.
The dollar could gain a lift in the near term if someone who is seen by markets as having a more hawkish stance on monetary policy, such as Taylor, is actually chosen as the next Fed chair, said Roy Teo, investment strategist for LGT Bank in Singapore.
“The market has started to price in a more hawkish Fed chair,” he said.
Teo added that he sees the dollar rising towards the 115 yen to 120 yen area by the first quarter of 2018, but added that the greenback’s gains may then start to fade.
The reports of support for Taylor as the next Fed chief, helped offset news that Republican infighting might hamper the passage of a tax cut plan.
Optimism for a tax overhaul slipped following a CNBC report citing an aide of Senate leader Mitch McConnell that three GOP Senators may not back the Republican tax bill.
The outlook for the tax bill grew dimmer after Republican Senator Jeff Flake, a critic of Trump, said he would not seek re-election in 2018. This stoked worries among traders of even less support for a tax-cut plan, analysts said. (Reporting by Masayuki Kitano; Additional reporting by Richard Leong in New York; Editing by Eric Meijer)