Tax reform not to benefit US dollar
Published on 20.12.2017 15:54

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.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

The world of trading has no boundaries

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this broker. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

×

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this broker. Before deciding to trade foreign exchange you should consider whether you understand how CFDs work, your investment objectives, your level of experience and readiness of taking risk. The possibility exists that you could sustain a loss of some or of all of your initial investments and therefore you should not risk more than you are prepared to lose. Please seek independent financial advice if necessary.

Important notice
By clicking "Continue" you will be redirected to the website operated by FIBO Group, LTD company registered in BVI and regulated by FSC. Please familiarize yourself with the Customer Agreement through the link. Click "Cancel" to remain on this page.