The euro eased back from its earlier highs in Wednesday’s European session, while the US dollar largely held on to its gains as the market’s attention shifted to the much-anticipated announcement on tax reforms by the US Treasury Department.
After two days of solid gains, the euro succumbed to profit taking as it pulled away from the 5½-month high of 1.0950 touched earlier in the day to ease to around 1.0880 dollars in late European session. Another factor driving the single currency lower were the latest election polls out of France that showed the far-right candidate, Marine Le Pen, slightly narrowing her gap with Macron from 22 to 20 points.
The yen was mixed as some of the post-election excitement from Sunday’s vote in France abated, but the dollar managed to hold on to most of its gains against the Japanese currency as traders bet that the Trump administration will announce a major overhaul of tax policy in the United States. It is expected that the tax reforms will include the slashing of the corporation tax from 35% to 15% and the tax on overseas profits from 35% to 10% in a move intended to encourage the repatriation of offshore earnings. Surprisingly, the measures are not expected to include the controversial border adjustment tax.
The dollar stood around 0.5% higher near 4-week highs versus the yen at around 111.60 in late European trading. While big tax cuts have the potential of adding fresh impetus to the receding Trumpflation trade, the dollar’s gains are likely to be limited for the time being as it’s unclear if or when the tax plans would get through Congress.
The pound stuck to its recent range against the dollar, hovering around 1.2820 dollars for much of the day before setting a new intra-day high of 1.2852 in late session. The British currency was lifted last week after the UK Prime Minister, Theresa May, called snap elections for June 8. Polls showing that May’s Conservative party continues to hold a more than 20-point lead over Labour is supporting the pound at a time when British consumers appear to be tightening their wallets, which will likely have dragged down GDP growth during the first quarter.
Not faring as well this week are commodity-linked currencies, mainly the Canadian, Australian and New Zealand dollars. The Canadian dollar weakened to a 14-month low of 1.3625 yesterday after the US imposed import duties on Canadian softwood lumber. The loonie recovered slightly today, firming to around 1.3580 per US dollar but was being held back by disappointing retail sales figures.
Retail sales in Canada fell by 0.6% month-on-month in February, missing estimates of a more modest 0.1% drop. The figure wasn’t as bad however when excluding automobiles, with sales down just 0.1%, and there was an upward revision to the prior month’s data.
The possible repercussion on other commodity exporting countries from the US government’s protectionist stance also weighed on the aussie and the kiwi. The Australian dollar slumped to a more than 3-month low of 0.7461 versus the greenback in European trading, with today’s weaker-than-expected Australian CPI figures for the first quarter further dampening sentiment for the aussie.
The kiwi was not immune to the sell-off either and tumbled to near 4-month lows, and was last trading at 0.6885 against its US counterpart.
Crude oil prices looked set to end the day higher for a second day, helped by the latest US inventory data showing a bigger-than-expected drawdown in crude stocks last week. According to the US Energy Information Administration’s weekly report, crude stocks fell by 3.64 million barrels last week versus forecasts of a drop of 1.66 million. WTI oil jumped higher after the data to rise to just above $50 a barrel in late session.