US: Dollar may bite back, especially if tax reform comes through - AmpGFX

In view of Greg Gibbs, Director of Amplifying Global FX Capital, while the USD may appear in a broad bear market, there is potential for it to bite back.

Key Quotes

“The US growth outlook has picked up in recent months and is showing resilience to political uncertainty. The labour market data this week may help support the USD; especially if wage growth starts to show up, which is possible now that the labour market appears to be relatively tight. This could help revive rate hike expectations and US yields.”

“The heightened political uncertainty around the tight timeline for a new spending bill (end-Sept) and debt ceiling resolution (probably in October), and erratic Trump style appears to have prevented investors from positioning for tax reform.”

“Chief Economic Advisor Gary Cohn said Trump would begin a sustained public relations push for tax reform, starting on Wednesday this week, and Cohn predicting major legislation would be passed this year.”

“Apart from growth boosting tax cuts the reform is expected to include moving from a global to a territorial tax system and include a one-time tax break to repatriate offshore retained earnings. This would potentially generate a substantial rebound in the USD.”

“If Congress can make progress the spending bill/debt ceiling issues, and Trump can stay on a tax reform message, there is scope for a significant tactical recovery in the USD before year-end.”