Dollar Climbs on Likelier U.S. Tax Reform
October 20, 2017
The dollar benefited from several factors on Friday, climbing 0.7% against the yen, kiwi and Swiss franc, 0.6% versus the peso, 0.4% relative to the euro and Australian dollar, 0.2% against the loonie and 0.1% vis-a-vis the yuan. The greenback edged 0.1% lower against sterling.
The Republican-controlled senate approved a filibuster-proof budget that enhances prospects for passage of a $1.5 trillion tax cut and other reforms.
It looks increasingly like Janet Yellen will not be reappointed to a second term as Fed Chair. Republicans Taylor or Powell are said to be the likeliest selections, and this suggests that the fed funds rate will rise more quickly in 2018, giving the dollar more advantageous interest rate premiums.
Ten-year Treasury futures indicate a 5-basis point increase in yield today. The German 10-year bund and British 10-year gilt yields also have risen 5 basis points, and the Japanese JGB is one basis point firmer.
There is some uncertainty ahead of Sunday’s Japanese lower house parliamentary election, although the likeliest outcome will be a win for Prime Minister Abe and his Liberal Democratic Party. In a speech, Bank of Japan Governor Kuroda warned that the BOJ’s massive quantitative easing is squeezing the profitability of regional banks there.
The ECB program of bond purchases seems likely to persist well into 2018 and perhaps for the whole year, albeit at a smaller monthly amount.
Equities in the Pacific Rim jumped 1.9% in Hong Kong and 0.7% in South Korea but but advanced only 0.3% in China and Indonesia and 0.2% in Australia, New Zealand, and Singapore. India was closed for holiday, and Japan’s Nikkei closed unchanged. In Europe, share prices have risen 0.8% so far today in Italy, 0.3% in the U.K. and Germany and 0.2% in Switzerland, Spain (despite the tension in Catalonia) and France.
Gold and oil prices fell respectively by 0.5% to $1,283.20 per ounce and 0.8% to $50.88 per barrel. The prices of non-precious metals are higher.
Euroland’s current account surplus averaged EUR 32.4 billion per month in July-August, 23% greater than a monthly mean of EUR 26.25 billion in May-June. In the 12 months through August, the surplus equaled 3.1% of GDP, down from 3.4% in the previous dozen months.
Italy’s EUR 3.68 billion current account surplus in August was smaller than in either June or July.
German PPI inflation increased to 3.1% in September from 2.6% in August and 2.3% in July. Energy producer prices leaped 1.0% on month and 4.6% on year, while all other components of the PPI edged up just 0.1% (2.6% on year).
Norwegian business sentiment shrunk a bit last quarter. Dutch consumer confidence remained steady at September’s level in October but somewhat weaker than in July or August.
Danish retail sales rebounded 0.8% in August and to a 1.7% year-on-year increase.
Canadian consumer price data, U.S. existing home sales and Mexican unemployment will be reported later today. The Chinese Communist Party Congress in Beijing and the European Council meeting in Brussels continue.
Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.