A 2nd House Vote on Tax Reforms to Influence the Dollar

Daily Update - 20th December 2017

Yesterday’s Focus

• EUR IFO, Business Climate
• US FOMC Member Kashkari Speech

Yesterday’s Explained

European stock markets are mixed, as yields begin to move higher. The FTSE 100 is up on the day, while the DAX dipped on a weaker than expected Ifo reading and as the EUR is once again above 1.18 against the USD. Comments from ECB officials meanwhile continue to show growing pressure on Draghi to shift to a more hawkish guidance on the policy outlook.  The ECB’s Weidmann continues to call for a quick end to QE, which is a growing call within the central bank.

Reuters reported U.S. House Republicans plan to attach a number of spending provisions to short-term legislation that would avert a government shutdown on Friday and fund the federal government until Jan. 19, a congressional aide said on Tuesday.  

Today’s Focus

• EUR Producer Price Index
• UK BoE Governor Carney Speech

Today’s Market

It’s a relatively quiet European session, with stats out of the Eurozone limited to Germany’s November wholesale price index figures. We won’t expect the numbers to have too much of an impact on the EUR, with forecasts pointing to wholesale price inflation rising at a slower pace last month.

The EUR’s made good ground this week against the Dollar, in spite of Chancellor Merkel continued struggles to form government following the September general election. For the Pound, following a quiet Monday, things could get a little more interesting this afternoon, with Bank of England Governor Carney scheduled to speak. Focus has been on Brexit talks, following last week’s in line with expectation monetary policy decision. Any talk of rate hikes could see the Pound break back into $1.34 levels, though as we have seen in recent weeks, how the UK government progresses in Brussels will ultimately be key for the Pound.

Across the Pond, stats out of the U.S are limited to November’s existing home sales figures that are likely to have a muted impact on the Dollar ahead of the House’s 2nd vote on the tax reform bill. The markets don’t like surprises and the procedural error left the Dollar on the back foot at the start of the week.

The markets will be looking for the bill to land on Trump’s desk before the end of the week, so both the House and the Senate will need to give the nod today. While focus will be on the progress of the tax reform bill, there will also be the need for a further extension on funding to avert a government shutdown on Friday. Reports suggest that the government will be looking for a 2nd extension through to 19th January.