Why did US dollar fall after Steven Mnuchin’s tax reform remarks? Market observers believe that there is a reason the greenback has slipped back…
24 February, AtoZForex – The US Treasury Secretary, Steven Mnuchin did not appear to take any side in relation to Donald Trump’s border adjustment tax initiative. However, some of the market observers thought he did.
Why did US dollar fall?
The dollar index shifted a bit lower after Mr. Mnuchin discussed the US administration plans for the tax and regulatory reforms, and economic growth. Moreover, he has talked about dollar strength. However, Mr. Mnuchin did not mention anything in regards to Chinese currency matters. As a fact, Donald Trump has accused China of manipulating currency.
Market observers also highlight that Mr. Mnuchin did not sound protectionist on the topic of US trade. Dan Katzive, head of North American foreign exchange strategy at BNP Paribas, has stated:
“He didn’t rule out the border-adjusted tax. If you thought it was a done deal, you might have been disappointed.”
Firms have been anxiously awaiting the border adjustment tax. The policy has been proposed as a part of the White House agenda. Moreover, markets expect that the tax reform will spur the dollar rally, in case it passes. The tax would apply to all goods coming into the US, except for exports.
Does tax reform lack the endorsement?
The head of G-10 currency strategy at Deutsche Bank, Alan RuskiWhy did USD falln, has stated that the lack of support for the border adjustment tax is one of the reasons the USD has slipped back. He has commented:
“I think the market was a little bit disappointed about a few things. … He said nothing about the strong dollar story, nothing clear or clean on border-adjusted taxes and probably in some ways, the most way, was when he was talking about three percent growth, he was pushing it back to 2018.”
Additionally, Mr. Mnuchin seemed to signal a long pause on fiscal policy and its impact on the US growth, according to Mr. Ruskin. He has explained that it is more significant since firmer growth from stimulus and taxes is “the cornerstone of the strong dollar story, and as far as accelerating the Fed hiking.” The dollar index, which is measuring the USD against the basket of six major currencies, was at 100.87 after Mr. Mnuchin’s interview. Prior to the remarks, the index stood at 101.27. Mr. Ruskin has added:
“I think maybe people were expecting something more dollar positive from Mnuchin. The tone was conciliatory as it related to China, particularly the trade issue. He didn’t really push it.”
Such change has provided support for peso and other emerging markets’ currencies. The Mexican peso emerged 1 percent higher against the US dollar.
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