Forex today: dollar volatile on tax bill announcements, BoE sent cable off a cliff

Forex today was moving on the back of the US tax plan details that weighed on equities, the dollar and US yields.

The partisan divide is what alarms the markets in respect to this bill, despite being designed for the broadest appeal in Congress. However, the moves were not particularly significant, with US 10yr treasury yields falling from 2.36% to 2.33% after the tax plan was announced. The US dollar index was more volatile though and fell on the tax bill headlines, but later recovered to be down -0.1% on the day. Ahead of tomorrow's nonfarm payrolls, the Fed fund futures yields were pricing in the chance of a December rate hike at 98%.

Earlier, the BoE was the key event and moves continued in the US day. GBP/USD was hit hard on the dovish hike outcome, in a sell the fact scenario with a twist of dovishness where there was no mention of further hikes in “coming months” along with the removal of the line saying policy could be tightened more than the market expects. Also, the BoE now sees only two more moves over next three years. GBP was falling after the BOE rate hike from 1.3240 to 1.3043. EUR/GBP bulls were up from the 200 to the 100 -D SMA.

EUR rose from 1.1630 to 1.1690 while USD/JPY traded around 114.10 but fell to 113.54 on the US tax plan announcements as did equities.  The Aussie consolidated its gains from overnight after a dip to 0.7694 before moving back onto the 0.77 handle while the Kiwi ranged between 0.6890 and 0.6935. 

Key events ahead

Analysts at Westpac noted the forthcoming data for the Asian session on Friday: Australia: Sep retail sales is expected to rise 0.4% (Westpac +0.3%), a relatively weak recovery from falls in Jul-Aug totalling 0.6%. That is then seen to leave Q3 real retail trade flat (Westpac -0.1%) as discounting, particularly in the food sector (40% of retail), provides a slight offset. Oct AiG PSI is released; last in at 53.0 after a 3.4pt drop in Aug. China: Oct Caixin services PMI follows the official non-manufacturing release earlier in the week.

Key notes from the US session

• Wall Street pares early losses to close higher
• Market wrap: Republican tax reform plan released, DXY down - 0.1% - Westpac
• Fed: Powell’s nomination does not change outlook for monetary policy - Wells Fargo
• What does Powell mean for markets? - ING
• Fed's Powell: Have seen substantial progress in economic recovery
• US Pres. Trump: Powell understands what it takes to make economy grow
• Fitch: UK rate rise has little growth impact, shows global shift
• U.S. House tax chief: Tax bill will be revised to bring deficit to within $1.5 tln ceiling
• US: Rising productivity mirrors recent GDP gains - Wells Fargo
• ISM NY: Current Business Conditions came in at 51.6 in Oct, up from 49.7 in Sep
• US: Weekly initial claims was 229,000, a decrease of 5,000 from previous week