USD to drive direction from US politics? – BBH

As North American operators return to their desks, the greenback is little changed, even though it did slip to the low for the week against the yen, when it became clear that the Republicans were going to lose the Senate seat in Alabama, points out the research team at BBH.  

Key Quotes

“This reduced the Republican majority to one in the Senate.  Owing the fissures in the party, this is putting at risk other parts of Trump's agenda, which Treasury Secretary Mnuchin acknowledged earlier this week is necessary to achieve the kind of growth levels that the tax bill assumes.”  

“However, the Republicans anticipate finalizing the tax bill in the next few days, while it still has a two-seat majority.  The tentative plans call for the Senate vote next Tuesday followed by House vote Wednesday.  Still, the plan appears fluid.  The latest talk is that the corporate rate may be set at 21%, even though both versions of the bill specified 20%.  While the Senate had been considering the bill, a Republican-sponsored amendment say to cut the corporate rate to 20.94% and use the revenue to provide payroll tax relief to parents of young children.  It was rejected as anti-growth may the majority.”  

“The new version reportedly will use the revenue to fund lower taxes for singles' making more than $500k and couples earning more than $1 mln.   We continue to worry that the delicate compromises that made passage of the Senate bill will be thrown off by the reconciliation process, and could stymie the tax bill at the last minute.    President Trump is scheduled to make a public statement on the tax changes at 3:00 PM ET today, which would overlap with Yellen's last press conference which begins at 2:30 ET.”