US: Despite all the tax talk, White House impact on the $ remains negative - ING

Viraj Patel, Research Analyst at ING suggests that the resurgence of hawkish Fed sentiment may allow for the USD to correct from oversold levels, but any recovery will likely be short-lived.

Key Quotes

“The August US jobs report may turn out to be somewhat of a goldilocks affair for global markets today; modest employment growth (+160k) could alleviate some of the pessimism surrounding the state of the US economy, while the not so hot wage growth readings (0.1% MoM; 2.5% YoY) are unlikely to spook the currently benign global bond market. It's clear that investors are underestimating the near-term prospects for additional Fed tightening, with both the start of balance sheet shrinking in Oct and a Dec rate hike still very much on the table. However, while the resurgence of hawkish Fed sentiment may allow for the USD to correct from oversold levels, any recovery will likely be short-lived and limited in the absence of a significant (positive) change to the US economic growth outlook.”

“Central to this remains the Trump administration’s pro-growth economic agenda and while White House officials continue to talk up prospects of a tax package, investors are no longer buying into tentative promises. The reaction to Treasury Secretary Mnuchin’s comments yesterday is a case in point; the lack of details over how tax cuts would be credibly funded and stay deficit-neutral (as most of Congress will require) meant that US yields and the $ were unmoved by talk of a tax plan. Add to this comments over the need for a weaker currency to help US trade and it’s clear that the White House’s impact on the dollar remains negative for now.”