US Tax Bill passes

21 December, 2017

US Tax Bill passes

On Wednesday, the US Senate approved the tax bill 51 for and 48 against, while the House of Representatives gave it final approval, passing it for the second time in two days after a procedural foul-up forced another vote. The bill passed the House with a vote of 224-201, with no Democrats voting for it and some Republicans members also voting no. The bill now heads to President Trump for his signature. The markets remain concerned as to how much stimulus the bill will give to an already improving US economy. Improved growth could cause upward inflationary pressures which may result in the Federal Reserve increasing the pace of rate hikes which would see USD strength. However, it could increase fiscal deficits with little incentive for businesses to hire more workers which could stunt economic growth and see USD under pressure. Only time will tell what effect the bill will have on USD as the markets are now gradually “winding down” for the Holiday Season.

Earlier today the Bank of Japan released its monetary policy statement opting to keep its policy unchanged. The BoJ stated that it is committed to its 5-year-old 2% inflation target, but suggested inflation expectations to be in a “weakening phase.” It forecast that inflation would likely gradually rise thanks to tightening capacity commenting “Industrial production has been on an increasing trend, and labor market conditions have continued to tighten steadily,” Short term interest rates will stay at -0.1% and the target for the 10-year government bond yield at zero percent. The statement was expected by the markets although many believe the BoJ will remove its stimulus (QE) in 2018. JPY has strengthened against USD recently and early Thursday trading has seen some of those gains erased as USDJPY has moved higher.


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