Will central banks get a helping hand from fiscal policy as talk of deficit spending gains momentum? Chatter of govt stimulus from Germany and now talk of tax cuts from the White House are making the rounds. The Washington Post reported that the White House may push for a temporary cut in the 6.2% Federal payroll tax. Trump backed the idea today. GBP was the 2nd strongest currency of the day (behind CHF) after German Chancellor Merkel said the EU would consider practical solutions regarding the post-Brexit bakcstop. EURGBP dropped back near session lows but GBPUSD clinged near the highs. Below is the English and Arabic videos combined in one video, highlighting yesterday's Premium trade.
Both reports from Berlin and Washington highlight the conditional nature of the promises. Both are framed as options governments would only consider in the event of intensifying economic weakness. The trouble with the US report is that it would need to get through Democrat-controlled House without having to give up something the Republican-controlled Senate would agree to.
Ashraf predicted two weeks ago in this tweet that below tax cuts would resurface from the White House.
In other news (or more of the same), Trump stepped up criticism of the Fed once again, calling for 100 basis points of easing and fresh QE. That chatter is increasingly falling flat in the markets but it highlights the risks for the Fed, including the risks around the FOMC Minutes on Wednesday.
Fed dissenter Eric Rosengren appeared on TV Tuesday and reiterated that he wasn't prepared to ease further because the FOMC is currently on track to meet its objectives. That said, he also indicated he would be willing to switch to cuts if a foreign slowdown was causing enough domestic weakness to significantly weaken his forecast for 2% US growth.
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