Euro climbs on caution over impact of US tax bill

December 19, 2017

Frankfurt (Dec 19)  The euro rose slightly on Tuesday as investors took a cautious view over how much tax reforms, if passed, would boost the U.S. economy, with most major currencies trading in tight ranges in a relatively thin market.

Traders are shying away from taking big positions ahead of the holiday season, although news that the U.S. tax overhaul was set to become law helped support some risk appetite.

The euro was up 0.2 percent at 1.1805 against the dollar, and broadly flat against the pound at 88.16 pence per euro.

"It's a bit neutral," said Viraj Patel, a foreign exchange strategist at ING. "The tax reform is going to be one of the key angles for markets this week...(but) nobody is going to be taking any major positions before the year-end."

The euro is up more than 12 percent against the dollar so far this year and is on track for posting its best annual performance since 2004.

While it remains roughly 3 percent away from the 2-1/2 year peak of nearly $1.21 hit in early September, the 2017 gains show how sentiment towards the euro zone has turned around completely from earlier this year when the bloc's breakup was discussed.

The Republican-controlled U.S. Congress appears all but certain this week to pass the sweeping tax overhaul backed by President Donald Trump after two Senate Republican holdouts agreed on Monday to support it.

Rising hopes of the bill's passage helped push U.S. stocks to record highs on Monday. European stock futures had a timid start after corporate deal-making had pushed markets higher earlier in the week.

While Fed policymakers expect the U.S. economy to get a short-term lift from the tax reform, they project growth will then ease back to about 2 percent by 2020 and not rise to around 3 percent as Trump and his administration predict.

"We expect the bill to pass, as do many market participants, and it seems to make the equity investors happy," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

The dollar was flat against the yen at 112.535 yen , drifting in a range between a high of 113.750 hit a week ago and Friday's low of 112.035.


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