(04 DECEMBER 2017)DAILY MARKET BRIEF 1:USD rallies after US Senate passes tax bill

The US dollar has been rallying strongly since the market opening this morning. The greenback extended gains against all its G10 peers, rising the most against the Japanese yen and the Swiss franc (+0.65% both), the New Zealand dollar (+0.45%) and the Swedish krona (+0.38). On Saturday, the Senate finally approved the US tax-reform proposed by Donald Trump. The outcome of the vote was very close as the bill passed by a vote of 51 to 49. No democrats voted for the bill.

After months of struggle, this is the first victory for Donald Trump since he took office more than a year ago. However, the final bicameral version may take some time to come up, as the Senate and the House of Representatives have to find common ground. Potentially, the bill could lead to a reduction of the corporate tax rate to 20% (compared to 35% currently), in addition to a cut for individuals as well.

We have been waiting for this signal for quite some time. However, it seems that the news come a little late as investors have already shift attention to the ECB’s tightening move and the economic acceleration in the euro zone. We expect the single currency to keep appreciating against the greenback. On the other hand, high quality commodity currencies, such as the Aussie and the Kiwi, should suffer from narrowing interest rate differentials against US yields. EUR/USD is currently trading at around 1.1850, slightly below the 1.1961 resistance (high from November 27th). On the downside, a support lies at 1.1809 (low from November 30th).

By Arnaud Masset