The U.S. dollar has experienced choppy trading to open the week as traders wrestle with the fallout from the Senate’s passage of the Republican tax bill and the net impact to the economy if it becomes law.
The U.S. Senate passed their version of tax reform early Saturday morning after hours of intense deal making and handwritten amendments. Both sides admit that no Senator was able to read the whole bill before voting. The bill will now enter the reconciliation process to try to bridge the differences between the House and Senate versions. The President hopes to have the bill on his desk “within 10 days.” While the reform is expected to add between 1 and 1.5 trillion dollars to the deficit over the next ten years, economists disagree on how effect the bill will have on the health of the economy. However, equity futures are pointed to a higher open this morning.
Today’s economic docket is light with only factory orders and durable goods out at 10 a.m., but the rest of the week is chalk full of risk events. PMI and ISM service indexes will be released tomorrow morning, followed by ADP private employment on Wednesday. This week’s marquee reading is Non-farm payrolls and the unemployment rate on Friday morning. Economists project that the economy added 199K jobs in November, after adding an impressive 261K in October. The print is not likely, however, to change near term interest rate projections. Fed Funds futures show a 98% that the FOMC will hike rates by a quarter point next week.
The EUR/USD has taken its cues mostly from developments in the United States. The cross remains elevate on general dollar weakness but has seen some downward pressure following the passage of the Senate’s version of tax reform. Overnight, the Eurozone Sentix investor confidence eased more than expected this month but remains close to multi-year highs. Eurozone GDP will be released early tomorrow which could drive trade.
The British pound continues to be at the mercy of political developments in the U.K. Prime Minister Theresa May headed to Brussels today to have lunch with EU Commission President Jean-Claude Juncker. The two are still trying to come to terms over the final divorce settlement, the Irish border issue and the future of the European Court of Justice. As always, we will continue to watch the seemingly never ending developments surrounding Brexit.