US news flow to remain a key driver of the USD - ANZ

Analysts at ANZ suggest that the news flow from Washington will remain a key driver of the USD.

Key Quotes

“The Senate will try to approve its version of the tax bill – with further changes to the text probably a prerequisite of getting enough votes. Changes possibly include a tweak higher to the corporate rate cut or a slower phase-in - with both measures likely to weigh on sentiment towards the USD. With significant differences remaining between the House and the Senate versions, an overhaul of the US tax system remains unlikely near-term. As such, even if the Senate approves the bill, we see limited upside for the USD.”

“We will also keep an eye on Fed’s talks around low inflation– as an increasing number of officials are worried about structural factors weighing on prices. Notably, comments from future Chair Powell and the Fed’s Williams (a voter next year) will be scrutinised for how ongoing soft inflation could affect the outlook for rates. However, with a December hike almost a certainty and four vacancies on the Board in 2018, it’s hard to see huge policy implications for pricing.”

In Germany, the SPD is under increasing pressure to start coalition talks with Merkel’s CDU. The two parties are trying to avoid early elections; while a minority government is proving to be an unpopular option. While headlines may drive some volatility, implications for the broader euro area are few; and – more importantly – growth is too strong for Germany to affect sentiment towards the euro. US