The US dollar enjoys a strong start to the week, rallying on the passage of the tax cuts and forgetting about Trump’s troubles. Will this continue?
On the night between Friday and Saturday, the US Senate approved the tax cuts with a small majority of 51 to 49. Eventually, only Republican Bob Corker voted against the bill. He cited the ballooning deficit of between 1 to 1.4 trillion dollars over a decade. However, the rest of the holdouts managed to get concession on several items and agreed to vote in favor.
The Senate bill is slightly different from the House one and it now enters a “conference” – reconciling the differences between the texts and eventually voting on that version. A final bill is expected to pass by both chambers late in December.
Markets are happy to see tax cuts: they boost company profits and promise an additional sugar rush of growth. At this point in the economic cycle, the cuts are not projected to really change the economy, but any push is positive. Higher growth implies higher inflation and higher interest rates, thus positive for the dollar.
From Trump Trouble to Tax Triumph
On Friday, there was optimism that the Senate will vote in favor, but it wasn’t 100% certain. The main story was what we learned about the Russia investigation. Former National Security Adviser Michael Flynn crossed the lines and will cooperate with investigators. It is unclear if he will testify directly against President Trump, but things are getting closer to the top ranks.
The US dollar fell on Friday and so did so stock markets. And now the mood is totally different.
Over the weekend, Trump tweeted about the topic and by some accounts, his words amount to an obstruction of justice. We may have to wait for early 2018 to understand how severe things are, but the story is not going away.
Nevertheless, the tax cuts seem to have the upper hand at the moment. The greenback is uniformly stronger across the board, with no currency spared from the might of the USD.
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