The largest, strongest moves in the Forex market are usually caused by the U.S. Dollar, and this week has been no exception to that rule. The greenback has been resurgent everywhere, especially against the Euro and Japanese Yen. The break above the 113.00 level against the Yen is particularly exciting technically, suggesting that pair is now established within a long-term bullish trend. What are the factors causing this strong flow into the U.S. Dollar? There are two: Janet Yellen adopting a more hawkish tone in a speech earlier this week on monetary policy, and President Trump finally unveiling very long-awaited details of his long-touted major tax reform plan in a speech which will take place later today. The latter event can also be expected to boost U.S. stocks.
The key statement from Yellen which was seized upon was her signal that she is more worried about inflation that had been supposed. The Federal Reserve has a target inflation rate of 2%, and she said that she feels the Federal Reserve must not sit back and wait for this target before raising rates – it must be done pre-emptively and gradually. This increased the consensus estimate on the probability of a rate hike in December, and began pushing the dollar up in markets.
Much has been written about President Trump’s oft-stated desire to dramatically slash corporate taxes to as low as a 15% flat rate. He has also talked about how ridiculously complex the tax system is for individual taxpayers, and he is certainly right about that. The average person cannot file an accurate tax return without the help of an
accountant or specialized software, and typically needs to input about 150 pieces of information on their return. Of course, the markets are focusing on the prospect of a substantial reduction in corporate taxation and a possible semi-amnesty for corporate capital repatriation to the United States, as liable to boost the share prices of many companies, and hence broader market indices such as the S&P 500 Index.