By Jemima Kelly
LONDON, Dec 7 (Reuters) - The dollar recovered some ground against the yen on Thursday, as global markets regained some appetite for risk, and on optimism that the United States will successfully push through a tax reform programme.
The greenback had slipped against the safe-haven Japanese currency on Wednesday after U.S. President Donald Trump said he would recognise Jerusalem as the capital of Israel -- a move that imperiled Middle East peace efforts and provoked widespread condemnation.
Against a basket of six major currencies, the dollar hit a two-week high.
U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.
"The dollar is fighting back a little bit but there's still some caution, as it could still be a few weeks until we know the oucome of the tax reform bill," said Rabobank currency strategist Jane Foley, in London.
"The yen will be sensitive if geopolitical tensions rise again, and I think there's an inevitability to that, so I don't think there's going to be too much updside for dollar/yen in this environment," she added.
Upbeat U.S. private-sector employment data released on Wednesday also provided some support to the dollar. But strategists said the currency would trade in narrow ranges until the release of the closely watched non-farm payrolls report on Friday.
The move higher in dollar/yen came amid a surge in Tokyo shares, which had slumped the previous day on Middle East concerns.
But considering the Nikkei's gains - the index was up almost 1.5 percent - the dollar's rise versus the yen appeared limited, some observers noted.
"The decoupling that has begun taking place between equities and currencies is one of the key market themes of 2017," said Daisuke Karakama, chief market economist at Mizuho Bank.
The euro inched down a touch to $1.1792 after hitting a two-week low of $1.1780 on Wednesday.
Bitcoin soared to a record high of more than $14,500, up almost 7 percent on the day and continuing a staggering surge from less than $1,000 at the beginning of the year.
The Canadian dollar added to losses suffered on Wednesday after the Bank of Canada held interest rates steady and showed enough caution to dampen expectations for a hike early next year.
The loonie was 0.3 percent down on the day at a six-day low of C$1.2835 per U.S. dollar.