By Saqib Iqbal Ahmed
NEW YORK (Reuters) - The dollar edged higher against a basket of major currencies to hit a two-week high on Wednesday, as market participants grew more optimistic about lawmakers' progress on U.S. tax legislation.
The dollar index (.DXY), which measures the greenback against six rival currencies, was up 0.18 percent at 93.547.
"The dollar is finding some support on expectations that Congress is going to pass tax legislation sometime this year," said Sireen Harajli, FX strategist at Mizuho in New York.
The U.S. Senate voted to go to a conference committee to resolve differences between its tax legislation and a rival version passed by the House of Representatives, moving the Republican-led Congress a step closer to a final bill.
The dollar index moved higher after data from a payrolls processor showed U.S. private-sector employment growth eased in November even as the manufacturing sector added the most jobs in at least 15 years.
The dollar was 0.36 percent lower against the Japanese yen.
"A flight to safe havens is underway at the moment," said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto.
"The potential for a U.S. government shutdown is intersecting with worries about the long-term geopolitical risks associated with Trump's recognition of Jerusalem as Israel’s capital to push money into the yen," he said.
President Donald Trump abruptly reversed decades of U.S. policy on Wednesday and recognized Jerusalem as the capital of Israel, generating outrage from Palestinians and defying warnings of unrest in the Middle East.
The yen tends to benefit during geopolitical or financial stress as Japan is the world’s biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.
On Wednesday, Trump also raised the possibility of a U.S. government shutdown by week's end - blaming Democrats for that possible outcome - one day before he is due to host Republican and Democratic congressional leaders for talks on a spending bill.
Bitcoin extended its rally, breaking above $13,000 to a record high despite questions about the cryptocurrency's real value and worries about a bubble.
Sterling touched a one-week low in volatile trading amid growing concerns that a Brexit deal may be unlikely before next week's key European Union summit.
The Canadian dollar fell against its U.S. counterpart after the Bank of Canada held interest rates steady and showed enough caution to dampen expectations for a hike early next year.
(Reporting by Saqib Iqbal Ahmed; Editing by Meredith Mazzilli and Lisa Shumaker)