Daily Market Update

Volatility Drops; Tax Overhaul Vote Today

December 19, 2017

The U.S. dollar was mostly flat overnight but lost against the Euro as Republicans head down the apparent home stretch of their six-week sprint to overhaul the tax code.

USD

The House is scheduled to vote on the tax bill around 1:30 p.m. today and the Senate is likely to bring the bill to a vote as soon as they get it. In short, the major overhaul could be on the President’s desk to sign by the end of the week. Economists have varying views on the bill over the debate of whether the promised economic benefits are worth the $1.5 trillion dollar price tag. Either way, it would mark the first major legislative victory for President Trump and its passage should have a slightly dollar-positive bias.

This morning’s economic data showed that housing starts jumped slightly more than expected in November. However, October’s reading was downwardly revised so the two numbers cancel each other out. There is no other major data slated for today so all eyes will be on Capitol Hill. Overall, volatility is has been muted to start the week, a trend that may continue before markets close for the Christmas holiday.

 

EUR

The Euro drifted slightly higher but remains well within the range we have seen over the past two weeks. The German IFO Business Confidence Index was mixed. While December’s reading failed to meet estimates, November’s meeting rose to a record 117.6.

One-week volatility in the EUR/USD pair is headed for a near record low for any December 19th. EUR/USD has fallen for eight straight days and little is likely to spark a big move ahead of holiday weekend. Much of Europe will remain closed on December 26th.

 

GBP

The British pound continues to ebb and flow with the prevailing headline winds surrounding Brexit. The biggest news overnight was the hardline towards the financial sector taken by EU Brexit negotiator Michel Barnier. He said that there would be no special deal for U.K. financial services and the city of London while laying out a tough approach to trade negotiations which will begin early 2018. In an interview with the Guardian, Barnier said it is the result of “the red lines the British have chosen for themselves” and “in leaving the single market, they lose the financial services passport.”

 

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