London: The dollar fell to a 10-month low on Tuesday, bearing the brunt of a sell-off triggered by another setback to US President Donald Trump’s agenda and scaled-back expectations for another rate hike at Federal Reserve this year.

The announcement overnight that two Republican senators would not support the latest version of the health care bill — had led to speculation that the reform proposal was likely to be withdrawn.

It fed into a belief that Trump’s tax cuts and spending plans will come to nought.

The dollar index against a basket of major currencies sank to its lowest since last September with euro rising above $1.15 (Dh4.22) against the greenback for the first time since May 2016.

In Asian hours, the Australian dollar surged more than 1 per cent after minutes from the central bank’s last policy meeting showed it turning more upbeat on the economic outlook.

“The reform momentum of the Trump administration has received another blow,” said strategists at Morgan Stanley led by Hans Redeker, in a note to clients.

The strategists, however, added that the “Goldilocks” scenario for the United States — loose monetary policy along with relatively healthy economic growth — was likely to continue.

Expectations for the Fed hiking interest rates this year have been pushed back to the fourth quarter, the latest Reuters poll of more than 100 economists showed. A poll conducted last month predicted the Fed would raise rates by September.

“Clearly anything that comes along at the moment just corroborates the market’s negative attitude on the dollar,” said Neil Mellor, senior FX strategist with Bank of New York Mellon in London.

“There’s just not enough inflation at the moment. And anything like this [defeat for Trump] is liable to push it lower.”

Expectations for a rate hike at the Bank of England were also dented, hurting sterling, as British inflation unexpectedly slowed for the first time since last October. The drop in the pound helped the exporter-heavy FTSE 100 recoup earlier losses and trade higher on the day.

Elsewhere in Europe, stocks struggled with European shares off 0.4 per cent as a set of disappointing results from the likes of Ericsson and Lufthansa soured the mood.

Regional stocks have rushed back into the limelight this year as foreign investors have piled in on the back of receding political risks, upbeat earnings and an economic recovery gaining traction.

Bullish bets on Eurozone equities were named as one of three top crowded trades in the latest Bank of America-Merrill Lynch global fund managers survey, leaving them most vulnerable to earnings disappointments or signs of central bank tightening.

Tempered expectations for Trump’s spending plans weighed on European bond yields which edged lower, tracking US equivalents, after the collapse of the second health care bill.

US 10-year bond yields fell after the news, while German 10-year yields dipped 2 basis points to 0.57 per cent when European trading started on Tuesday.

Yields across the globe rose sharply after Trump won the US election in November on promises for tax reforms and infrastructure investment that were expected to boost growth and inflation in the world’s largest economy.

In commodity markets, oil prices steadied as expectations of firm demand, particularly from China, was met ample supply.

Brent crude futures eased 0.1 per cent to $48.35 a barrel while US crude oil fell 0.2 per cent to $45.93.

US markets down despite solid results

About 15 minutes into trading on Tuesday, the Dow Jones Industrial Average was at 21,569.17, down 0.3 per cent.

The broad-based S&P 500 shed 0.2 per cent to 2,454.45, while the tech-rich Nasdaq Composite Index dipped 0.1 per cent to 6,305.92.

Netflix was the standout of a busy earnings news cycle, leaping 8.8 per cent after reporting a better-than-expected jump of 5.2 million subscribers in the second quarter to take the total to more than 100 million worldwide.

Bank of America was flat after reporting that second-quarter profits rose 11 per cent to $4.9 billion, and Goldman Sachs was also unchanged after reporting earnings of $1.6 billion, virtually the same as in the year-ago period. Both banks reported a hit to their trading operations due to low volatility.

Harley-Davidson sank 10.2 per cent after reporting a 6.7 per cent drop in worldwide retail motorcycle sales in the second quarter.