Tax Reforms and Approval on Spending to Trump the Dollar

We may have considered the Healthcare Bill to be the first test for the Trump administration, but in reality the markets have been far more interested in the promise of tax reforms and a fiscal stimulus package to give the U.S economy a boost that is also expected to shift the FED’s relatively conservative projections towards monetary policy neutralisation, in favour of a more aggressive rate path in response to anticipated rising inflationary pressures.

None of the above has yet to materialize with the U.S administration and the markets realizing that, even with a majority Republican House, it’s not all going to be the Trump way.

The Dollar has suffered as a result, though the U.S president is certainly not complaining with the slide in the Dollar, which tip toed over the edge at the turn of the year, looking set in its ways for now.

A lack of material macroeconomic data through the day will certainly leave the markets with very little to consider, the economic calendar on the lighter side until a packed Friday, by which time the markets will have Trump’s tax reforms on the table and there will also be a more educated guess on whether Congress will approve yet another spending bill, the deadline for approval being midnight 28^th April.

Perhaps the biggest embarrassment will be the fact that the Republican Party is in charge of the purse strings and have yet to garner the necessary votes, suggesting that the Republican Party remains in disarray after Trump’s first 100 days, which coincides with the deadline for approval of the spending bill.

For now the talk is positive and that there won’t be a government shutdown despite the press scaremongering, though when considering the impact of the 2013 shutdown on the U.S economy and the labour market, there is just cause for the Dollar to be on the defensive ahead of Friday’s deadline.

Whether Congress approves a stopgap measure or pass the appropriations bill or a combination of the two remains to be seen, but it’s not just a majority that is needed, the vote needing 60 to pass the appropriations bill, which means that not only will the Republicans need to be aligned, but also 8 Democrats.

It’s not uncommon for the vote to go down to the wire with the democrats likely to jostle for something in return, but with Trump’s desire to crank up military spending and border controls, the approvals are going to be needed else the U.S administration could be seen as failing yet another campaign pledge so early into the presidency.

For the day ahead, the markets will need to put aside any concerns over the pending spending approval, with the U.S administration scheduled to roll out tax reforms this evening. Unlike the spending bill, tax reforms fall under the budget and so require only a majority vote, meaning that there is no need to bring democrats on board, if that is comfort to the markets, the U.S administration having already struggled to bring its own house on board on the healthcare bill earlier on the year.

Congress likes a show and the next few days will certainly provide some interesting viewing, which is perhaps fortunate considering the light economic calendar.

Trump needs the Dollars, the Healthcare Bill having failed to deliver much needed funds in support of the tax reforms scheduled for release this evening and the heavily anticipated fiscal stimulus package, which continues to sit on the back burners, the U.S president more than likely in search of every last cent to deliver perhaps the most important of pledges made during the campaign trail.

April’s CB Consumer Confidence figures released on Tuesday softened from March’s 16-year high, but were still considered strong, despite a less optimistic outlook, the weaker numbers likely to be as a result of disappointment towards the delays in Trump delivering on the pledge to rebuild America.

While focus will be on the Oval office and the Dollar through the U.S session, the markets will also be cognizant of tensions between North Korea and the U.S, though we can expect the U.S session to belong to Trump and tax reforms. There’s been plenty of hype and the time has come for the markets to gauge whether the U.S president can walk the walk.

At the time of the report, the Dollar Spot Index is up 0.17%, bouncing from an intraday low 98.728 on the European open, as the markets begin to price in the prospects of significant tax cuts, which are considered by many to likely lead to a resumption of the Trump rally and surge in domestic consumption, driving inflation.

The EUR gave up intraday gains to sit down 0.11% at $1.0915 at the time of the report, with the risk on sentiment leaving the Yen down 0.25% at ¥111.37.

Dollar strength will likely persist through to the U.S session with no material stats scheduled, the Dollar on the move in anticipation of this evening’s tax reforms.