© Reuters. Bank notes of different currencies are photographed in Frankfurt, Germany, in this illustration picture
By Masayuki Kitano
SINGAPORE (Reuters) — The dollar inched higher against a basket of major currencies on Friday, having pulled back from one-month highs set this week as investors pondered the Trump administration's tax plan and the outlook for Federal Reserve policy.
The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.1 percent to 93.155 (DXY), languishing below Thursday's peak of 93.666, its highest level since Aug. 18.
For the week, the dollar index has gained 1.1 percent, putting it on track for its biggest weekly gain since December.
The dollar rose this week on renewed hopes for U.S. tax reforms, as well as comments from Federal Reserve Chair Janet Yellen that stressed the need for gradual interest rate hikes.
Traders are probably taking profits in the wake of the dollar's rally, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.
"It's also the realization that we've been down this tax reform road before, and I don't think it's going to be easy… There's going to be a lot of back and forth, a lot of squabbling," Innes added.
U.S. President Donald Trump proposed on Wednesday the biggest U.S. tax overhaul in three decades, calling for tax cuts for most Americans.
Against the yen, the dollar edged up 0.2 percent to 112.57 yen . On Wednesday, the dollar had reached a 2-1/2 month high of 113.26 yen.
Later on Friday, investors will turn their focus to U.S. economic data including the personal consumption expenditures (PCE) price index for August.
The euro held steady at $1.1786 , having pulled up from Wednesday's trough of $1.1717, the common currency's lowest level in more than a month.
The common currency has rallied 12 percent against the dollar so far this year as worries about the rise of anti-establishment political forces in Europe faded while expectations rose for tapering the European Central Bank’s stimulus.
The euro, however, has been weighed down this week after the results of elections in Germany on Sunday. Chancellor Angela Merkel won a fourth term in office but will have to build an uneasy coalition to form a government.
Sterling eased 0.1 percent to $1.3425 . On Thursday, it had gained 0.4 percent, after Britain's Brexit secretary said "considerable progress" had been made in talks and the EU's chief negotiator praised a "new dynamic" from the prime minister.