• The dollar fell to its lowest in a week against a basket of major currencies on Thursday after Republicans in the U.S. House of Representatives released proposals to overhaul the tax code.
The legislation called for slashing the corporate tax rate to 20 percent from 35 percent and reducing the number of tax brackets for individuals, according to a summary document obtained by Reuters.
• Analysts said the proposals put forth were both unlikely to gather sufficient support in Congress and unlikely to have significant impact on the U.S. economy. “Massive” tax cuts had been a major campaign promise of U.S. President Donald Trump.
“The market believes that the likelihood of tax reform passing quickly is diminished,” said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange. “... the market believes that it’s not enough to be meaningful. It’s doubtful that it’ll be meaningful for the overall GDP of the country.”
Cutting taxes would increase spending, drive inflation and U.S. interest rates higher, and make the dollar more attractive. If the tax cuts fail to pass or do not provide incentive for increased spending, they would not support a stronger dollar.
• The dollar index .DXY fell to 94.411, its lowest since Oct. 26. It had earlier risen, almost touching its highest level since mid-July. The euro EUR= hit its highest level in a week against the dollar, rising to $1.1687.
The dollar also hit a session low against the Japanese yen JPY= after the tax cut proposal's release, falling to 113.55 yen.
• The benefits for individual taxpayers will be mixed and depend largely on where they fall on the income scale, where they live and the types of tax breaks they tend to claim.
Those making up to $24,000 will pay no income tax. For married taxpayers filing jointly, earnings up to $90,000 would be taxed in the 12 percent bracket; earnings up to $260,000 would fall in the 25 percent bracket; and earnings up to $1 million would be taxed at the 35 percent rate. For unmarried individuals and those filing separately, the bracket thresholds would be half of these amounts, other than the 35 percent bracket, which would be $200,000 for unmarried individuals.
The proposal roughly doubles the standard deduction for middle-class families, expanding it to $24,000 for married couples, from $12,700, and setting it at $12,000 for individuals, from $6,530 today. Republicans also plan to expand the child tax credit to $1,600 from $1,000 and add a $300 credit for each parent and nonchild dependent, such as older family members, though that credit would expire after five years.
The bill includes a host of other changes that will affect taxpayers in different ways. For instance, it repeals certain tax credits, including a 15 percent credit for individuals aged 65 or over or who are retired on disability. Right now, those individuals can claim up to $7,500 for a joint return, $5,000 for a single individual, or $3,750 for a married individual filing a joint return.
• President Donald Trump on Thursday tapped Fed Governor Jerome Powell to become head of the U.S. central bank, breaking with precedent by denying Janet Yellen a second term but signaling a continuation of her cautious monetary policies.
In an announcement at the White House, Trump described the soft-spoken Powell as a smart and committed leader who would build on Yellen’s achievements in steering the U.S. economy after the recovery from the 2007-2009 financial crisis.
Powell has been a reliable supporter of the consensus forged by Yellen on the policy-setting Federal Open Market Committee, and likely will be seen as a less risky choice with the economy growing solidly and U.S. stock markets near record highs.
The Fed has raised rates twice this year and is widely expected to do so again next month.
But Powell has gone further than his colleagues in calling to relax some of the stricter regulations imposed after the crisis, also important to Trump. Powell can now pursue that end along with Trump appointee Randal Quarles, the Fed’s new vice chair for supervision.
• Federal Reserve Board Governor Jerome Powell, who has voted to support Fed Chair Janet Yellen’s low interest rate policies, may not be as negative for the U.S. dollar in the long term as originally thought, investors and analysts said on Thursday.
Earlier on Thursday President Donald Trump tapped Fed Governor Jerome Powell to become head of the U.S. central bank, breaking with precedent by denying Janet Yellen a second term but signaling a continuation of her cautious monetary policies.
• Financial markets have typically viewed Powell as bearish for the dollar because he has supported gradual interest rate rises, rather than more aggressive moves. The dollar has consequently sold off on reports that he will be the next chair. However, some believe that Powell would be a net positive for the greenback.
“The dollar is more likely to turn up under Powell because the economic trajectory in the U.S. is going up,” said Richard Benson, managing director and co-head of portfolio investments at Millennium Global in London.
• Oil prices edged up on Thursday, steadying near two-year highs as the outlook remained upbeat as OPEC-led supply cuts have tightened the market and drained inventories.
Brent crude LCOc1 settled up 13 cents, or 0.2 percent, at $60.62 per barrel. The benchmark hit $61.70 on Wednesday, its highest intraday level since July 2015. The contract is up by more than a third from its 2017-lows in June.
U.S. crude CLc1 ended 24 cents, or 0.4 percent, higher at $54.54, almost 30 percent above its 2017-lows in June.
Reference: Reuters
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