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Tax reform not to benefit US dollar
Published on 20.12.2017 16:54

The US dollar has remained under pressure in the last 3 trading sessions which is strange inlight of Donald Trump’s tax plan which is certain to become law by the end of this week.

The last 2 remaining hurdles are confirmation on the amended plan by the US House of Representatives followed by a signature from Donald Trump and the law will take effect 12 days later.

There has been much talk about the new tax legislation  and how it will benefit the US economy so why has the US dollar failed to rally and instead has been under pressure since it became obvious the tax plan would pass?

On first glance the tax reform package looks promising with corporate tax rates being reduced to 20 percent and personal income tax rates are being reduced across the board. But on closer look, it seems as the reforms will benefit the wealthy the most and as a whole, is not so beneficial for the overall economy

“Any boost to the economy would be small and there is nothing in the final bill to change that view,” said Andrew Hunter, A U.S. economist, at Capital Economics in London

 “There is little evidence linking corporate tax cuts to stronger growth,” Hunter said. “There are few examples either historically in the U.S. or internationally of lower corporate taxes resulting in a significant and sustained boost to business investment.” He added.

The worry for the greenback now is that most of the good news is factored into the market and public sentiment on the reforms will now dictate the effectiveness of the biggest tax overall in 30 years.

If that sediment turns sour, the US dollar may be in for a big retreat against the major currencies, giving up what it has gained in the previous month when it became obvious the legislation would pass.


Andrew Masters

Analyst

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