Yesterday, President Trump proposed a revamped tax plan to the people of Indiana. The plan is anticipated to bring on economic growth and to furthermore advance the U.S. dollar. Trump’s proposal offers decreased corporate income tax rates, tax cuts for small business, and it reduces the tax rate for the wealthiest Americans as well. It also offers a one-time decreased tax rate for those companies to eliminate overseas profits. Analysts believe that this offer can lead to a period of significant purchasing of the dollar.
Takafumi Yamawaki, chief fixed income strategist at J.P. Morgan Securities believes, “”It is hard to expect this proposal to pass Congress smoothly”. He also added, “”We have to pay attention to how the Republicans will view this,” and, “It is possible that the net fiscal spending will be smaller than the stock markets expect.”
Thursday preceding Trump’s proposed tax plan, the dollar dropped even after its rise with bond yields. Most of the data is reinforcing the idea that we are due for another Fed rate increase this year.
With the idea of increased U.S debt levels and an anticipated Fed increase sent 10 year Treasury yields to their highest since mid-July, with the 2-10 year yield curve the highest in a month.
“The market had given up on the Trump reflation trade and this is coming back with a bit more detail on tax plans,” stated analyst Rainer Guntermann, “At the same time, this gives the Fed more ammunition to hike rates in the coming months”.
The week’s dollar rallied regardless of the U.S. trading pause.
Earlier gains were apparent against Japan’s yen, as it explored above 113 yen. Investors also had their eyes on the increase in Japan’s 10-year government bond yield toward levels at which the Bank of Japan would be expected to buy bonds to maintain its zero percent target for long-term rates. Euro/dollar held above $1.1775, with European bond yields climbing in the slipstream of Treasuries.
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The dollar checked back against the yen to 112.65 yen after hitting a two and a half month high of 113.26 yen the day before.
After the largest drop on Wednesday all year, the Canadian dollar stabilized after Bank of Canada Governor Stephen Poloz shut down expectations for interest rate increases this year. Canada’s loonie was last at C$1.2475 versus the U.S. dollar.
U.S. bond yields leaped with the two-year note climbing to a nine year high of 1.49 percent.