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USD EUR Exchange Rates Slide on Talk of US Tax Reform Delay

November 14, 2017 - Written by John Cameron

The US Dollar Euro exchange rate fell backwards today as markets responded to news that the Senate Republican tax plan could push for a year delay to corporate tax cuts.

Possible Corporate Tax Cut Delay Weighs on USD EUR Exchange Rates

Republican senators are expected to delay corporate tax cuts by a year, it was revealed today, potentially risking clashes with US President Donald Trump and jeopardising the likelihood that hundreds of businesses will return to operate from the US.

The Senate plan’s delay to corporate tax cuts until December 2019 are liable to disappoint a number of chief executives who have been anticipating the rate reduction (35% to 20%), with a delay liable to continue hobbling their ability to compete in a global market.

Treasury Secretary Steven Mnuchin echoed this sentiment on Thursday, but he also pointed to the possibility that a delay might be worth accepting over the struggle to get the original bill passed.
Mnuchin stated:

‘Obviously right away is better than a year, but a year is better than obviously a longer phase in’.

In addition, a one year delay would reportedly lower the cost of the bill by some $100 billion, freeing up a significant amount of funds.

The market response to this news was, nonetheless, negative, with a delay liable to leave US GDP floundering below Trump’s target and thus potentially hurt the chance of future rate hikes.

ECB Economic Bulletin Proves Upbeat – EUR Exchange Rates Hold Steady

A sparse data calendar has left the Euro in a state of hibernation today, succeeding most perhaps because of yesterday’s positive bulletin from the European Central Bank (ECB).

Repeating the general sentiment of the October policy meeting, the bank asserted the following:

‘Overall, the latest economic indicators are, on balance, consistent with a continued robust growth pattern in the second half of 2017’.

The bank also pointed to growth in private consumption underpinned by a jump in employment, a point that markets were glad to hear with the ECB having previously indicated that it could be forced to extend its QE programme if the economy doesn’t meet the required metrics.

USD EUR Outlook Bearish Before US Inflation

Next week will feature an abundance of US data prints, including the inflation figures for October, retail sales figures, average hourly earnings, employment figures, import prices and industrial production prints.

Understandably USD traders have grown somewhat bearish in anticipation of such an abundance of releases.

Weak US inflation has been a point of contention for some time, with markets worried that an especially poor reading could diminish the chances of a rate hike in December.

Fed Chairman Janet Yellen, on the other hand, sounded unperturbed by this possibility in the latest statement, insisted that the current limp inflation readings will pass and that they’re not a massive cause for concern.

Nonetheless, disappointing releases will likely encumber the ‘Greenback’ further as will any indication that the Senate’s version of the tax reform bill is picking up speed.

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