* Fed news, tax bill fuel profit-taking after recent rally
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Nov 2 (Reuters) - The U.S. dollar fell on Thursday, giving up some of its gains this week, 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 preparing to nominate Governor Jerome Powell, seen as less hawkish than other candidates, markets waited for fresh data to push the dollar .
“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.
Against the yen, the dollar slipped 0.1 percent to 114.09 yen. It had gained about 0.5 percent overnight and approached the 114.450 it reached on Friday, its highest level since July, underpinned by upbeat U.S. data and enhanced prospects for a December interest rate hike.
Against a broad basket of currencies, the dollar was 0.2 percent lower at 94.67.
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 for the monthly payrolls data on Friday.
But some market watchers pointed to the shrinking interest rate differentials between 10- and 2-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 but is not likely to spell out in detail how they should be offset.
Markets have priced in another 25-basis-point rate hike at a policy meeting next month, according to CME’s Fedwatch tool.
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, editing by Larry King)