Last week of September, the US dollar surged 0.5% against the basket of major currencies on the back of optimism about Donald Trump’s tax reform. Besides, the greenback found support from the hawkish stance of the US Federal Reserve that boosted US bond yields.
Recently, the federal funds futures market has priced in more than a 70% chance for a rate hike in December. A month ago, traders allowed for a 20% chance for this scenario. The market cemented its expectations in light of recent hawkish statements from US Fed Chair Janet Yellen.
The US President’s administration announced that the Republicans in Congress are ready to unveil the tax-cut reform next week. In case the new tax plan is approved by Congress, this will be Donald Trump’s first legislative victory since he took office in January.
Experts say that the tax reform will create benign conditions for keeping GDP rates at 3%. Sustainable GDP growth will prop up the US dollar which has been weighed down for the most part of 2017.
Meanwhile, the US dollar’s rally put pressure on the euro last week. The single European currency dropped unexpectedly in response to the outcome of Germany’s parliamentary election. The euro has shed almost 3% since it hit 1.2092 against the US dollar in late September which is the highest level since January 2015.
In October, the euro has dropped by 0.5% to 1.1740 against the US dollar, the lowest mark since August 23. The EUR/USD pair closed on Friday, September 29 with a 2% weekly loss.
