US dollar sentiment was hit Thursday and early Friday by two key developments; confirmation of a one-year delay to the corporate tax reform and better-than-expected UK data.
The US senate announced details of the US tax reform plan Thursday afternoon US time. It unveiled a few changes including the one investors had been waiting for – a 12-month delay. Data underscoring a healthy UK manufacturing sector Friday, exacerbated the weaker dollar tone.
By around 10 BST, the British pound had moved higher to touch $1.315 against the US dollar. That was around half a cent higher than before the Senate announced the corporate tax reform delay.
US tax reform delay unsettles investors
While there were some positive details in the Senate’s tax reform news, those elements were largely ignored by the markets. That’s because, since Tuesday when a number of reports suggested there could be a delay, the markets have been awaiting further information on that important point.
“The market wants to see tax cuts this year,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management in Dallas, according to a Bloomberg market report. “That’s the reason we’re seeing the selloff now.”
The confirmation of that one-year delay has encouraged further US dollar selling. It also leaves room for other currencies to capitalise on any other relevant news.
UK data driving British Pound
Friday’s UK industrial production release comes ahead of a plethora of key economic data releases next week.
The Office for National Statistics (ONS) said UK industrial production and the separate manufacturing output index, both grew 0.7% on the month in September. That was the biggest increase, for both measures, since December 2016.
The UK’s global goods trade deficit was also positive, narrowing to £11.25 billion in October from £12.35 billion in September.
The above forecast figures buoyed the British pound. However, sterling remains at the mercy of next week’s slew of data and more volatility for the cable currency pair, is likely.