Good morning,
USD: 6 week high for the greenback
Unity and approval within and for the Republican tax plan helped the USD higher yesterday as Trump announced the Republicans are set to work on passing a bill that would represent a huge win for the Trump administration (if accomplished…) this year. While all the jazz and hoopla of the tax plan announcement was being made, very quietly the Senate decided not to progress another vote on the repeal of the Obamacare program.
With the high level of spending that Obamacare needs and a huge tax cut possibly coming down the chute, the US’s budget deficit will be in focus again and will limit just how many cuts to tax revenues can be made.
Nothing comes quickly in the Trump administration and tax laws are not changed on a dime so this will take a while to actually get through the various committees before coming to a vote but, for now, the USD rally is coming courtesy of the policy echoes that helped it earlier in the year.
GBP: BOE Chief Economist talks up rate hike
Bank of England Chief Economist Andy Haldane yesterday said an interest rate increase “would be a sign of the economy healing, and therefore adjusting to that healing process. So rather than being a source of fear or trepidation, this ought to be a good news story about the economy proving resilient.” We feel there is little standing in the way of the Bank of England at least undoing the emergency interest rate cut made in the weeks after the EU referendum, at the upcoming quarterly inflation report in November and the crucial factor will be the communication of what comes next; further hikes or nothing.
Haldane’s comments, despite being hawkish, have done little for sterling; markets are happily pricing in a 76% probability that interest rates will rise in November.
Brexit news will heat up momentarily courtesy of a press conference between Michel Barnier and David Davis to discuss the outcome and progress of the 4th round of Brexit negotiations.
NZD: Reserve Bank of New Zealand hold rates
The RBNZ held interest rates overnight at 1.75% as was widely expected reiterating the forward guidance that it gave in August i.e. that interest rates will remain “accommodative” for a considerable period. Comments on the strength of the NZD were limited to “a lower New Zealand dollar would help to increase tradables inflation and deliver more balanced growth” and markets have, for once, helped the central bank by pushing NZDUSD lower.
The Day Ahead
US and German inflation numbers will dominate the economic calendar but political news will continue to dominate the wider conversation. Apart from the news from Washington and Brussels, Berlin is still trying to pick apart the election results and what the coalition will look like once formed.
Have a great day