US tax uncertainty hammers dollar

November 10, 2017 04:00 PM

Republican House and Senate tax plans differ

The US dollar depreciated against majors in a week that had few economic indicators for investors to digest and left the market speculating about the chances of a US tax overhaul and the impact of the developments in Saudi Arabia over the weekend. The week of November 13 to 17 will bring to light important data releases. Inflation figures from the United Kingdom, the US and Canada will be the main events.

The UK’s Office for National Statistics will release the consumer price index (CPI) on Tuesday, November 14 at 4:30 am EST. The rise of inflationary pressure prompted the Bank of England (BoE) to hike rates for the first time in a decade. UK inflation is expected to come in at 3.1 % in October.

The US Bureau of Labor Statistics will publish the change in consumer prices on Wednesday, November 15 at 8:30 am EST. At the same time, the US Census Bureau will release the monthly retail sales data. Core inflation is forecasted to come in at 0.2 % on a monthly basis adding up to a 1.7 % year to year comparison. Core retail sales are expected to have gained 0.2 % in October.

The euro/U.S. dollar (EUR/USD) currency pair gained 0.51 % in the last five days. The single currency is trading at 1.1667 after a week of few economic data releases leaving the market to value the impact of political events. The US tax reform that at one point had revived the USD rally is slowing down hard with doubts rising on the ability of Republican lawmakers to turn the proposal into legislation.

The USD had risen more than 4 % against major pairs in September but has slowly given some of those gains back as the Republican House and Senate proposals diverge with little time to hammer the differences.

The economic calendar in Europe will be quiet leaving the attention of the market to focus on inflation in the UK and the US. The U.S. Federal Reserve is expected to raise rates at the end of its December meeting, but the move has already been priced in. Strong signs of US inflation would keep the rate hike on the table and give some momentum to Jerome Powell’s term at the head of the central bank when his term begins in February.

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