USD Higher Awaiting Trump Tax Plan

The U.S. dollar strengthened broadly on Wednesday, with the currency hitting nearly four-week highs against the yen, on anticipation that a promised White House announcement on tax reform could boost the greenback.

The dollar jumped to 111.73 yen, its highest level so far this month, while the euro was last down 0.5 percent against the greenback at $1.0874 after touching a 5-1/2-month high of $1.0950 on Tuesday ahead of the tax plan announcement. The euro rose to match that same high against the dollar in early trading on Wednesday.

U.S. Treasury Secretary Steve Mnuchin said the plan for “the biggest tax cut” in U.S. history due to be released later on Wednesday would cut the business tax rate to 15 percent, including for small businesses.

Analysts said traders were also taking profit on bearish “short” bets against the dollar and bullish “long” bets on the euro after the dollar had plunged against the euro in recent days following centrist Emmanuel Macron’s victory against anti-euro nationalist Marine Le Pen in the first round of France’s presidential elections.

Gains for the euro this week have also been spurred by expectations of a change in the direction of European Central Bank policy in coming months. The ECB is set to meet on Thursday.

“The dollar is seeing some strength across the board today on excitement and expectations for the Trump tax plan,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.

Borthwick said, however, that traders’ scepticism that any announced plan would pass through the U.S. House and Senate exactly as proposed capped the dollar’s gains.

The Australian dollar sank about 1 percent against the greenback to a more than three-month low of $0.7462 after soft Australian inflation numbers.

Key measures of core inflation stayed stubbornly short of the Reserve Bank of Australia’s (RBA) 2 to 3 percent target band, implying there was scant pressure for a hike in interest rates anytime soon.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza