On Thursday, the dollar hit its highest level in two weeks while world shares rallied with general recovery in global risk sentiments. The greenback previously dropped against the Japanese yen after U.S. President Donald Trump stated he would recognize Jerusalem as the capital of Israel on Wednesday. This move jeopardized the Middle East peace efforts and provoked prevalent disapproval.
On Thursday, global stocks gained and the dollar increased nearly half a percent versus the yen trading at 112.72 yen , reaching a two-week high against the basket of currencies. The MSCI World Index that tracks shares in 47 countries gained 0.1 percent and futures markets pointed to a positive open for Wall Street.
According to analysts, careful optimism regarding U.S. tax legislation supported some of the dollar’s gains. On Wednesday, the Senate agreed to discussions with the House to reconcile their two tax bills. Early indications are leading towards an agreement will be made prior to the self-imposed Dec. 22 deadline.
“The corporate tax reform has the potential to have a significantly positive effect on the greenback, but due to other parts of the reform – those that are aimed at preventing tax base erosion,” according to currency strategists.
“It is still unclear how this part of the reform will be designed … so we might end up with something that was not included in either of the proposals. It is therefore far from certain how much of a dollar-positive effect the tax reform will result in.”
Sylvain Goyon, an equity strategist, believes the recent sell-off in tech was not probable to last all that long. “The key drivers of the industry are still there”, he said, adding that investors decided to cash in profits and reinvest in lower priced financial shares set to benefit from the U.S. tax plan.
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