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● Stock markets mixed as US tax plan fails to re-boot the Trump trade
● Dollar index near five-month lows as economic impact questioned
● Mexican peso and Canadian dollar rally as White House stays Nafta execution
● Euro and Bund yields steady ahead of ECB policy decision
● Brent crude soft amid lingering oversupply concerns, gold price dips
Forex is in focus as traders absorb developments regarding US president Donald Trump’s fiscal and trade policies.
The dollar index (DXY), which measures the buck against a basket of its peers, is down 0.1 per cent to 98.93 and flirting again with five-month lows after the White House’s outline proposals for tax reform failed to reboot the “Trumpflation trade”.
The DXY hit a 14-year high of 103.82 at the start of January as investors made bets that Mr Trump’s mooted policy of tax cuts, alongside a boost to infrastructure spending, would help accelerate the US economy and encourage the Federal Reserve to raise interest rates at a faster pace.
But many analysts seem sceptical of the tax plan’s ability to freshly energise markets, with Michael S. Hanson, chief US macro strategist at TD Securities, noting that “the announcement is hardly a step forward for the tax reform timeline, but mainly an affirmation of the Administration’s policy priorities”.
“If anything, the plan suggests significantly higher fiscal deficits over a 10-year horizon, implying a difficult road ahead for passage.”
Derek Halpenny at MUFG notes:
The aggressive nature of the tax proposals will reinforce building doubts over the Trump administration’s ability to pass the legislation through Congress in its current form
It leaves the US dollar vulnerable to further weakness in the near-term. The dollar index has closed below its 200-day moving average early this week for the first time since the end of Q3 2016 which is sending a bearish technical signal as well.
What to watch
The European Central Bank will deliver it latest monetary policy update at 12:45 BST.
Economists expect no change in interest rates or the ECB’s asset purchase programme, but as ever traders will be watching the following press conference, due to start at 13:30 BST, for any clues to possible strategy shifts.
Ahead of this the euro, which bounced at the start of the week in relief over the first round of the French presidential election, is down slightly to $1.0898.
Wall St pulled back from record levels late on Wednesday after the Trump tax reform outline encouraged some “sell on the news” action by investors.
Futures indicate the S&P 500 will open Thursday’s session steady at 2,388, but some European and Asian bourses, which had some strong rallies at the start of the week, are using the US retracement as an excuse for a bit of profit-taking.
Amid a very busy session for corporate results on both sides of the Atlantic, the pan-European Stoxx 600 is down 0.4 per cent as commodity stocks struggle.
Oil prices are lower after the Energy Information Administration said on Wednesday that US inventories of crude fell by more than expected in the week to April 21, but gasoline stockpiles rose sharply, disappointing analysts looking for further signs that Opec’s production cuts are having a broader tightening effect on the market.
International benchmark Brent is down 0.4 per cent at $51.62 a barrel, while West Texas Intermediate, the main US contract, is off 0.6 per cent to $49.34 a barrel.
Gold is 0.4 per cent weaker at $1,264 per ounce as haven demand fades.