U.S. Dollar Underpinned by Optimism Over U.S. Tax Reform

The U.S. Dollar rose against a basket of currencies for a second straight day on Tuesday, following through to the upside after Monday’s 0.33% gain. Speculators continued to buy and short-sellers continued to cover a portion of their positions over optimism surrounding the overhaul of the U.S. tax code.

December U.S. Dollar Index futures finished the session at 93.334, up 0.190 or +0.20%.

According to CNBC, on Monday, the Republican-controlled House of Representatives voted to go to conference with the Senate on tax legislation, setting up formal negotiations on the bill that could take weeks to complete. The Republican-led Senate is expected to hold a similar conference vote later this week.

Investors expect the final deal will be struck before Christmas, but if there are any snags or delays then the process may continue into 2018. At this time, most investors are betting on a Christmas date which is why they are underpinning the greenback.

U.S. Economic News

The U.S. trade deficit widened in October to a nine-month high on record imports that reflect steady domestic demand, the Commerce Department reported on Tuesday.

According to the data, the deficit gap increased 8.6% to $48.7 billion versus a forecast of $47.5 billion from a revised $44.9 billion in the prior month that was wider than previously reported.

Imports climbed 1.6% to $244.6 billion, boosted by mobile phones, apparel, household goods and service-related purchases. Exports were unchanged at $195.9 billion as more shipments of petroleum were offset by declines of capital equipment and consumer goods.

In other news, non-manufacturing economic activity slipped more than anticipated in November after a surprise expansion in the previous month.

The Institute of Supply Management’s survey of non-manufacturing firms declined to 57.4 in November, more than the 59.2 forecast. In October, the ISM Non-Manufacturing PMI was 60.1.

Gold

Gold hit its lowest level since August 8 on Tuesday in reaction to a stronger U.S. Dollar which rose against a basket of currencies. Despite lower equity markets, gold buyers failed to show up to support the market. This suggests we could be looking at further liquidation until we get more geopolitical risk and uncertainty in the world. Other data shows that overall physical demand is down to multi-year lows with no real demand from China or India.

Crude Oil

U.S. West Texas Intermediate crude oil and internationally-favored Brent crude oil finished higher on Tuesday on speculation that the American Petroleum Institute (API) and U.S. Energy Information Administration (EIA) weekly reports will show a drop in U.S. crude inventories.

Traders expect data from the API and EIA to show crude stocks fell 3.5 million barrels last week.

U.S. Equity Markets

The major U.S. stock indexes closed lower on Tuesday on profit-taking and stock rotation. The benchmark S&P 500 Index was pressured by weaker telecommunications, industrials and utilities. Facebook, Netflix and Google-parent Alphabet all closed higher, but this couldn’t help the NASDAQ Composite hold on to its earlier gains. The Dow was also pressured but gains were limited by a 1.4 percent jump in McDonald’s stock. Disney fell nearly 3 percent on reports that it was close to buying key assets from 21^st Century Fox.