Contrary to last weekend’s downward motion of the US dollar, the currency managed to open strongly this morning against currencies of other developed and emerging nations thanks to the ‘yes’ vote by Senate on the tax overhaul bill.
Because of the vote, treasury yields also rose and according to analysts Wall Street is all set for another record-setting day after the U.S. Because of anticipation that US stock markets will be riding the upward wave, European stocks opened higher, with French, German and British markets up 0.9 to 1.4 per cent.
Markets are definitely reacting to the Senate’s approval of the biggest tax law change since the 1980s, taking President Donald Trump closer to his goal of slashing taxes for businesses. Analysts believe that the tax deal could induce a lot of momentum in the stock market over the course of next few days right through to the end of the year.
Tax cut hopes have been a significant tailwind this year for U.S. stocks, although the move is expected to add to the country’s $20 trillion national debt and increase the chances of more aggressive near-term rate rises in the world’s largest economy. Those expectations pushed the dollar up as much as 0.4 per cent against a basket of currencies, while Treasury yields rose across the curve.
Two-year yields matched Friday’s nine-year high, indicating that bonds are already anticipating the debt increase.
For the time being, the dollar gave up some early gains against the euro and sterling, which traded around 0.3 per cent lower to the dollar. Many warn of risks ahead, especially a U.S. government shutdown, should this Friday’s deadline to authorise new borrowing pass without a deal.
World stocks rose just 0.18 per cent, though they stayed off recent record highs, following a shaky start in Asia caused by early selling in technology shares.
While Japanese shares closed half a percent lower most other Asian markets managed to end in the black. Emerging equities rose 0.5 per cent.