US dollar slides as Trump tax plan disappoints due to lack of details
The US dollar shed gains against major rivals on Wednesday after a White House tax reform announcement was viewed as lacking in new details, while the Mexican peso and Canadian dollar sank on reports that the US is considering withdrawing from the North American Free Trade Agreement.
US President Donald Trump’s plan would cut the income tax rate paid by public corporations to 15 per cent from 35 per cent and reduce the top tax rate assessed on pass-through businesses, including small partnerships and sole proprietorships, to 15 per cent from 39.6 per cent.
The dollar hit its highest level of the month against the yen of 111.77 just before the plan’s unveiling, but pared gains after the announcement and last stood little changed against the Japanese currency at 111.15.
Analysts said traders were disappointed by the lack of new details about the tax reform plan and on scepticism that any comprehensive tax changes will be approved by the House and Senate.
“There was a bit of ‘buy the rumour sell the fact,’” said Vassili Serebriakov, foreign exchange strategist at Credit Agricole in New York, in reference to the dollar’s rise ahead of the statement and later moderation. “It’s a long path toward this becoming a policy change, and markets recognise that.”
The euro also trimmed losses against the dollar and was last down just 0.2 per cent at US$1.0900 after having fallen as much as 0.6 per cent against the greenback to a session low of US$1.0857 earlier in the day.
The euro had touched US$1.0950 in early trading to match Tuesday’s 5-1/2-month high before facing selling pressure on hopes that the tax announcement would boost the dollar.
The dollar surged about 2.4 per cent against the Mexican peso to a more than one-month high of 19.2922 pesos and rose as much as 0.4 per cent against the Canadian dollar to C$1.3623 after reports that the United States was readying an executive order to withdraw from the North American Free Trade Agreement (NAFTA), a trade pact between the US, Mexico and Canada.
A senior Trump administration official confirmed the possibility of the order, which was first reported by Politico,
“It just underscores how important the American economy is to both Mexico and Canada,” said Joe Manimbo, senior market analyst with Western Union Business Solutions in Washington.
The dollar index, which measures the greenback against a basket of six major rivals, was last up 0.2 per cent at 99.018 .