USD consolidates as the US fiscal drama plays out - BBH

Analysts at BBH explain that the dollar continues to consolidate as the US fiscal drama plays out, as the 10-year US yield is down 1 bp at 2.32%, though the 2-year yield remains around 1.65%, the high for this cycle.  

Key Quotes

“With no major US data readings this week, markets are searching for fresh drivers.  There is a lot of headline risk today.  Why?”    

“Press reports vary but it appears that the US Senate may release a “conceptual” outline of its tax bill today.  Details, however, will probably be lacking.  A spokesperson for the Senate Finance Committee said that putting forth only a “narrative” will allow for more discussion.  To us, this is not a good signal and suggests that the many sides and factions involved remain far apart.”  

“The House Ways and Means committee is also expected to release a revised version of the House bill today.  Committee Chair Brady said that once the bill reaches the full House for a vote (maybe next week), it won’t be open for amendment.  The house is reportedly struggling to plug a $74 bln hole in their plan.”  

“If both the Senate and the House deliver today, markets should get a rough sense of how far apart the two versions are.  And if the two are very far apart, expect the dollar to come under renewed pressure.  Part of the recent dollar rally has been driven by market optimism regarding tax reform.  Republican Senator Hatch stated what many already know, which is that the election results this week will further complicate matters.”