Dollar slumps on report ex-adviser Flynn to testify against Trump

NEW YORK (Reuters) - The greenback slipped against a basket of currencies on Friday after ABC News reported that Michael Flynn, a former adviser to U.S. President Donald Trump, said he was prepared to testify that Trump directed him to make contact with the Russians when he was a presidential candidate.

A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The dollar index, which measures the greenback against six rival currencies, was down 0.15 percent at 92.903.

Growing optimism that U.S. Senate Republicans would be able to pass a tax overhaul bill had sent the index as high as 93.248, but the index reversed course sharply on the Flynn headlines.

Reuters could not immediately verify the ABC News report.

“To the extent that this headline further ensnares this administration into this investigation or suggests a widening of the Special Counsel’s probe, I think that it is certainly a key concern for global investors and that’s why we are seeing the dollar come off,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Meanwhile, U.S. Senate Republicans said they had gathered the votes needed to pass a sweeping tax overhaul, after last-minute negotiations to ease some senators’ concerns about the bill’s impact on the federal deficit, healthcare and property taxes.

A final vote on the bill was expected later on Friday.

The dollar has grown very sensitive to the prospect of the passage of the tax bill in recent weeks and any perceived hurdles have been a source of anxiety for dollar bulls.

The euro remained slightly weaker against the dollar, despite data that showed global manufacturing expanded at the fastest pace in years last month and the second-fastest for two decades in the euro zone, driven by robust demand.

The single currency was down 0.09 percent to $1.1891.

“The euro has had generally a good week, and it’s almost a dynamic of buy the rumour, sell the fact,” said Mazen Issa, senior FX strategist at TD Securities in New York.

Sterling slipped from a two-month high against the dollar, getting only a temporary boost from better-than-expected UK manufacturing data, as investors fretted about Britain reaching a deal with the European Union over the Irish border.

The Canadian dollar posted its biggest gain in about 20 months against its U.S. counterpart after stronger-than-expected domestic jobs data fuelled expectations for further Bank of Canada interest rate hikes early next year.

(This version of the story corrects direction of dollar index’s move to down from up in second paragraph)

Reporting by Saqib Iqbal Ahmed; Editing by Susan Thomas