U.S. dollar firm on report of support for Taylor as Fed chief

NEW YORK (Reuters) - The dollar held firm on Tuesday against a basket of currencies as a report that John Taylor has support from a group of Republican Senators to be Federal Reserve chief offset news that might hamper the passage of a tax-cut plan.

The New Zealand dollar was the biggest mover among G10 currencies, declining to a five-month low after the incoming Labour-led coalition government said it plans to review and reform the Central Bank Act to include employment, alongside inflation, as a dual target.

Taylor, a Stanford University economist, is seen as someone who may put the Fed on a faster path of interest rate increases. He favors a rule-based approach to setting rates.

"The assumption is that he's a hawk and because of his 'Taylor Rule'," said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Investment Management in Boston.

In addition to Taylor, Trump's candidates for Fed chief include current Fed Chair Janet Yellen, whose term expires in February, as well as Fed Governor Jerome Powell, Trump's chief economic advisor Gary Cohn, and former Fed Governor Kevin Warsh.

Optimism for a tax overhaul slipped following a CNBC report citing an aide of Senate leader Mitch McConnell that three GOP Senators may not back the Republican tax bill.

The outlook for the tax bill grew dimmer after Republican Senator Jeff Flake, a critic of Trump, said he would not seek re-election in 2018. This stoked worries among traders of even less support for a tax-cut plan, analysts said.

"Flake may not go along with the vote," Upadhyaya said.

The gauge that tracks the dollar against a group of six currencies <.dxy> was flat at 93.934, recovering from an earlier low of 93.682.

The greenback hovered near a three-month high versus the yen, gaining 0.4 percent at 113.90 yen .

It held below a three-month peak of 114.09 in reaction to Japanese Prime Minister Shinzo Abe's ruling party win on Sunday.

The euro edged up 0.1 percent to $1.1761 and rose 0.5 percent to 133.96 yen before Thursday's European Central Bank policy meeting.

Traders expect the ECB to signal a gradual removal of monetary stimulus as euro zone economic growth has improved.

The New Zealand dollar has lost nearly 5 percent on worries that a harder stance on immigration and foreign investment under its new government would hamper economic growth. It shed 0.9 percent to $0.6903 after hitting its lowest since May 19. .

(Additional reporting by Ritvik Carvalho in London; Editing by Paul Simao and James Dalgleish)