The US Dollar extended gains against its peers overnight after the full details on Trump’s tax reform framework were released overnight. The reforms are largely in line with expectations cutting the corporate tax rate to 20% from 35%, falling 5% short of the 15% promised during his campaign. The reform also includes a one-time tax holiday on earnings held offshore; the rate is still unclear but lawmakers said a repatriation rate of 10% is being considered. With as much as $2.6 trillion in profits held offshore, even a fraction of that coming back could be a boon for the greenback. The reaction thus far has been mixed and there are questions being asked about how this will all be paid for with The Committee for Responsible Federal Budget estimating the proposals would amount to a $2.2trn tax cut. For Republicans in Congress, the next step is to pass a budget resolution that would allow a tax bill to pass the Senate with a 51-vote majority. Senate bills often need 60 votes to overcome a ‘filibuster’, so the budget resolution would allow Republicans to duck that threshold. However going down the budget resolution path will only be possible if lawmakers identify offsetting fiscal savings over a 10-year horizon and this may be a tall order. When/if the budget resolution passes both chambers, the Senate Finance and House Ways and Means Committees can then begin drafting and amending tax legislation. As with other legislation, Trump has sought to pass through Congress this year, there looks to be a long path ahead and it would seem naïve to assume a quick and simple passage of this legislation.

Staying in the US, the Fed’s Bullard sounded a bit dovish, noting “the current level of the policy rate is appropriate” given that inflation “has surprised to the downside in recent months”. Elsewhere, the Fed’s Rosengren said: “it’s my view that regular and gradual removal of monetary accommodation seems appropriate”. Notably, the odds of a December rate hike as per Bloomberg remain at 70%.

Over in the UK, Bloomberg reports that EU leaders are considering bringing forward talks on the transition period post-Brexit as a small concession to kick-start the Brexit talks. Staying in the UK, the BOE will host the “20 years on” independence conference from the government. Watch out for speeches from Governor Carney, Praet and Lautenschlaeger who are all scheduled to speak.

The day ahead

Looking at the day ahead, in Germany we have readings for inflation and Gfk consumer confidence. In the Eurozone, we have various confidence indicators including consumer confidence, business climate, economy and industrial confidence. Over in the US, there is the third reading of Q2 GDP (3% expected), core PCE and personal consumption and wholesale inventories. We also have further Fed speeches from the Fed’s George and Fischer. 

Thought of the day

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