The Euro US Dollar (EUR USD) exchange rate continued to trend higher this morning as investors remain sceptical over the impact of Trump’s tax cuts.
US Dollar (USD) Weakened by Growth Doubts
The US Dollar slumped to a three-month low against the Euro this morning as investors continue to raise doubts over the positive impact of Trump’s corporate tax cuts.
Despite eagerly awaiting the tax reforms all year the market reaction to the passing of these cuts last week and been overwhelming subdued, leading to USD relinquishing even more ground.
Sireen Harajli, currency strategist at Mizuho in New York said;
‘The dollar had gained on expectations of tax reform. Now that it’s here, we are seeing it sold off.’
Markets appear worried that the cuts will take some time to be felt by the US economy, while also remaining sceptical that the tax cuts will deliver the miracle growth that has been promised by Trump.
Euro (EUR) Gains Trimmed by Italy Election Announcement
While the Euro is climbing against the US Dollar again this morning it ascent has likely been slowed by the announcement that the Italian government has been dissolved.
Italy’s President Sergio Mattarella announced this morning the dissolution of parliament in preparation for a general election in early 2018.
The election date is set for 4th March, leaving parties just over two months in which to campaign.
While markets are always shaken by the uncertainty of an election there are particular worries about this election in particular given the popularity of the Eurosceptic Five Star movement (M5S) which currently leads in the polls.
The party wishes to renegotiate a number of EU treaties and is threatening to leave the Euro if this is not done.
Another concern for investors is the likelihood of no single party winning an outright majority, with data from recent polls suggesting a new government may need to be composed of more than two parties.
Sergio Fabbrini, director of the school of government at Luiss University in Rome said;
‘It’s virtually certain that we won’t have a clear majority. The talks to verify whether a new majority can be formed could last until the summer. In Germany, the talks have dragged on for ages, and in Italy we may end up with about twice as many parties in parliament as in Germany.’
Such an outcome would lead to a weakened government for Italy, and could even lead to a second election if a coalition is unable to be formed.
EUR USD Forecast: German Inflation to Dip?
Looking ahead the EUR/USD exchange rate may be forced to retreat from its highs later this afternoon as Germany releases its preliminary CPI reading for December, with economists forecasting that the data will reveal that inflation slumped from 1.8% to 1.5% last month.
Meanwhile a lull in US data today will likely cause USD Investors to turn their attention towards next week and the release of the latest US Manufacturing PMI, with the US Dollar likely to be supported by robust factory activity in December.