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EUR USD Exchange Rates Bearish Ahead of Crucial Trump Tax Vote

November 16, 2017 - Written by John Cameron

The EUR USD exchange rate grew bearish today (despite a poor Eurozone inflation print) as markets prepared for the upcoming crucial vote on Republican tax reform.

Eurozone Inflation Disappoints, EUR Exchange Rates Encumbered



Inflation in the bloc proved weak in October, according to new data released on Thursday, printing 1.4% year-on-year, down from the previous period’s 1.5% but remaining in-line with preliminary estimates.
Month-on-month the figure demonstrated a 0.1% rise, below September’s 0.4% increase and below the forecast of 0.2%.

This marked the lowest reading in 3 months.

The market reaction to this news was understandably negative, as rather than climbing towards the European Central Bank’s (ECB) target of 2%, it is shifting in the opposite direction, further diminishing the perceived chances of a rate hike from the ECB as the bank moves into 2018.

As a result, the EUR USD exchange rate soon shifted back into the ‘Greenback’s’ favour, with markets believing the Federal Reserve to be the more hawkish, and therefore more reliable, option for a rate hike in the near-term.

House Poised to Pass US Tax Bill, USD Exchange Rates Bearish



The House of Representatives is currently poised to pass a sweeping restructuring of US tax code, an eventuality that could make-or-break the Republican Party’s hope for tax reform.
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Despite market apprehensions that the vote will fare as well the failed repeal and replacement of Obamacare earlier in the year, many GOP leaders remain confident that the legislation will, at least, make it through this crucial stage.

The legislation will, however, face further obstacles beyond the vote, as Republicans will have to align the legislation with the Senate’s version of the bill that is currently making its way through the Senate Finance Committee.

Nonetheless! If the vote is successful it will mark the first of many steps towards achieving reform, with markets very hopeful for the proposed corporate tax cut from 35% to 20%, and the simplification of tax bands from a whopping 7 to a more easily managed 4.

In this respect, a successful vote at this stage will likely send the US Dollar soaring, with markets pleased that America’s economic growth could be eventually bolstered should the reform occur.

EUR USD Forecast: Fed December Rate Hike Bets Increase



The medium-term outlook for EUR USD remains in the ‘Greenback’s’ favour, with investors increasingly pricing in a rate hike from the Federal Reserve in December.

The US economy continues to demonstrate growth, with US GDP hitting 3% in two consecutive periods, unemployment remaining at record lows and inflation (excluding food and energy) steadily inching its way towards the Federal Reserve’s target.

In this respect the soil could not be much more fertile for a third and final rate hike in 2017, and combined with a currently dovish ECB, markets are not likely to shift to favour the Euro unless perhaps the US tax reform fails to pass the House of Representatives.


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