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Hopes of U.S. tax cuts lift dollar index to three-week high

By Richard Leong

By Richard Leong

NEW YORK (Reuters) - The dollar rose to a near three-week high against a basket of currencies on Monday, lifted by hopes of U.S. tax cuts to stoke corporate profits and investments, as well as bets on whether the Federal Reserve may raise interest rates more quickly.

The greenback last week booked its strongest gain since mid-December after U.S. President Donald Trump on Thursday promised a "phenomenal" tax plan that the White House said would include tax cuts for businesses and individuals.

Investors hope Trump's promise of a tax plan signals that the focus of the president and his aides is shifting away from trade protectionism and security, and toward policies that promote economic growth.

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"People seemed to be more comfortable with the fiscal policy outlook. It's been friendly for stocks and also for the dollar," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Group Ltd in New York.

The dollar index, which measures the greenback against six other currencies, reached 101.11, its strongest level since Jan. 20. It was last up 0.15 percent at 100.95 <.DXY>.

The dollar advanced to a two-week peak against the yen following reports that Trump did not discuss the currency or its strength during weekend talks with visiting Japanese Prime Minister Shinzo Abe. The dollar was last up 0.4 percent at 113.60 yen <JPY=>.

The outcome of the two leaders' meeting was an affirmation for Japan in the face of challenges such as China's maritime expansion and North Korea's nuclear weapons and missile development.

The euro slipped to its lowest level against the dollar since Jan. 19, Reuters data showed. The single currency was last down 0.4 percent at $1.0600. <EUR=>

Investors are also focused on testimony by Federal Reserve Chair Janet Yellen before Congress on Tuesday and Wednesday in the wake of hints from other policy-makers who are leaning toward more hikes in interest rates this year than the two currently priced in by markets.

"I doubt that she will try to explicitly jawbone the markets to expect a March move, but I also do not think she wants March to be priced out," Stephen Stanley, chief economist at Amherst Pierpont Securities, wrote in a research note.

Interest rates futures implied traders saw a 21 percent chance the Fed will increase rates at its March 14-15 policy meeting, little changed from Friday <FFH7>, according to CME Group's FedWatch program.

(Additional reporting by Shinichi Saoshiro in TOKYO and Patrick Graham, Marc Jones in LONDON; Editing by Will Dunham and Leslie Adler)