Greenback rose to a one-month high against a basket of currencies on Thursday, inspired by hopes for a fast and unimpeded adoption of Trump’s tax plan. Which should allow the FED to accelerate in hiking cycle.
On Wednesday, Trump presented a bill in which he proposed significant tax breaks for both individuals and legal entities. The reform implies a reduction in income and corporate taxes while repealing some of the tax benefits in high-tax states dominated by Democrats. There is time till October, when Congress will start to shape the budget for 2018, to propagate the plan while defending it against the scrutiny from opponents.
No sooner had the plan to come out it was immediately met with superficial criticism from fellow party member Bob Corker, a well-known advocate of tight control of public spending. Corker walked through the most obvious points, highlighting the two main drawbacks – increasing the budget deficit while widening the gap between rich and poor further. According to some estimates, due to the reform, the US may miss $5.8 Trillion Dollars for 10 years, and the net cost of the project can reach $2.2 trillion by the year 2027.
Republicans edge in the Congress is tiny – 52:48 and it remains unclear how Trump wants to find support from the Democrats if the reform can damage their own electorate. Given the previous failure with health reform and the scale (both in time and money) of the tax plan, legislative success to Trump probably will not come soon. However, the very fact of the publication of the plan, positive data on orders for durable goods allowed the Dollar to develop a bullish impulse. EUR/USD tried to break the level of 1.17, but unsuccessfully, the pair rebounded above 1.1750.
Today a number of data on the US economy will be released, including consumption expenditure, GDP for the second quarter, unemployment benefits, Core PCE index, as well as wholesale and retail stockpiles. Also, today, two representatives of the Fed, George and Fisher are expected to give a speech providing guidance on the December rate increase. The index of the European CPI may give crucial clues on ECB policy decision before the meeting in early October, where Mario Draghi will have to announce several monetary policy decisions and good data will make the tone of statements more confident. The key indicator for September is expected at 1.8%.
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