USD: Odds of a Trump tax bill by mid-2018 still remain trivially low - ING

In view of Viraj Patel, Research Analyst at ING, what was meant to be a “very comprehensive report” was thin on the key details that US markets crave to make any meaningful assessment on the likelihood of a Trump tax plan being successfully signed into law and its overall economic impact.

Key Quotes

“In a strange way, the obscurity is helping to lift long-dated US yields and the USD – and one could see how ‘tax cut talk’ might act as a supporting factor for both in the near-term.”

“But our message for investors is not to get carried away; for all the hype over tax reforms this week, the release hasn’t added to what we already knew. The GOP plan sees corporate tax rates lowered to 20% (small businesses taxed at 25%), the individual tax code simplified to three brackets (top rate lowered to 35%) and some element of a repatriation holiday that allows overseas earnings held by US multinationals to be brought back onshore (though the details here are vague).”

“The bottom line is that the GOP tax plan release didn’t tick our two basic trading principles outlined yesterday. The lack of credible revenue raising measures, the focus on tax cuts and not reforms, as well as the somewhat regressive nature of the policies suggest that odds of a Trump tax bill landing on the President's desk in the next 6-12 months still remain relatively low. We still prefer to view the $ as being in correction mode – rather than the start of a fundamentally-driven move higher. Fading this is our preferred tactic, especially versus currencies where the domestic story remains constructive. In the G10 FX space, buying GBP/USD on dips looks attractive – especially with Carney and Broadbent set to speak in the next few days (both of whom may talk up prospects of a November BoE hike).”