The outlook for the EUR USD exchange rate continues to hinge on the success, or lack thereof, of the US tax reform proposal, with the Senate due to release its version of the plan sometime today.
USD Exchange Rate Outlook Hinges on Senate Tax Proposal
Traders are eager to assess the various details of the senate’s version of US President Donald Trump’s tax reform plan, with many expecting there to be considerable differences from last week’s House of Representatives proposal.
Trump’s promises of tax reform have been one of his biggest selling points for investors, with speculation that his proposal could foster growth, lift shares and propel the US Dollar making it a scheme of massive significance.
If the Senate’s version doesn’t veer too far from the House version, then the reconciliation process will arguably be easier – offering an increased chance that the proposal will successfully pass.
Conversely, a massive departure from the House proposal could prove problematic, casting doubts on the likelihood that the tax reform plan will pass – especially if this talk of a 1-year delay proves true.
If markets deem the tax reform proposal as likely to pass, then demand for the ‘Greenback’ will continue to build, with anticipation for the reform liable to catapult the US Dollar.
Any indication that it won’t pass, however, could curb demand for the US Dollar.
ECB Economic Bulletin Outlook Proves Optimistic – EUR USD Exchange Rates Climb
The near-term outlook for EUR USD has also changed today as a result of the European Central Bank’s (ECB) economic bulletin, with the ECB asserting that growth is likely to continue unperturbed into the New Year.
The bulletin read:
‘Private consumption is underpinned by rising employment, which is also benefiting from past labour market reforms, and by increasing household wealth. The upswing in business investment continues to benefit from very favourable financing conditions and improvements in corporate profitability’.
This outlook also helped deter anxieties that the ECB could continue extending its QE scheme, a prospect that could prove possible if the Eurozone’s economy fails to demonstrate robust economic growth.
This news quickly bolstered market confidence in the single currency, with data from the bloc today also supporting the EUR USD exchange rate – notably Germany’s trade figures which widened from 20.1b in August to 24.1b in September, smashing the forecast of 22.3b.
Fed Rate Hike Outlook Keeps USD Exchange Rates Soaring
The Euro US Dollar exchange rate will likely come under increasing pressure in the build-up to the Federal Reserve’s December rate decision, with economists almost entirely pricing in a third and final rate hike before the year’s end.
November’s policy meeting hinted as much, with the accompanying statement asserting that the damage caused by recent storms Harvey and Irma will not be long-term and that recent weak inflation is simply transitionary.
This positive outlook towards the US economy lends itself to another rate hike in December, and with Jerome Powell set to replace Janet Yellen as Chairman of the Federal Reserve next year, many are considering it likely that this cycle of monetary tightening will continue.
If this proves accurate then the EUR USD exchange rate will likely swing into the ‘Greenback’s’ favour as the year draws to a close.