Euro, shares rise ahead of US tax plan

> Dollar nears one month high in anticipation of interest rate hike

LONDON: Growing expectations that the US Federal Reserve will raise interest rates for the third time this year lifted the dollar yesterday, and European share prices rose as President Donald Trump’s administration prepared to outline a new tax plan.

The dollar rose half a percent to a one-month high against a basket of currencies and yields on interest ratesensitive two-year US Treasury yields touched their highest since 2008 after Fed chair Janet Yellen said on Tuesday it would be “imprudent” to keep rates on hold until US inflation hit 2%.

Ten-year yields climbed seven basis points to an eight-week high of 2.30%, also pushed higher by the prospect of tax cuts that could increase federal borrowing, analysts said.

Markets are pricing in a more than 80% chance the Fed will raise borrowing costs in December, according to the CME Group’s FedWatch tool, up from 72% a week ago. Several other senior Fed officials were scheduled to speak yesterday.

“Yellen’s comments gave more certainty about another rate

hike by the end of the year,” said DZ Bank rates strategist Daniel Lenz.

“Further details of Trump’s tax plans and whether this proceeds smoothly will be of interest – it should be a boost to the economy and mean a generally higher bond yield environment.”

On the eve of its unveiling, Trump said lawmakers should expect a “very, very powerful document” that would cut taxes “tremendously” for the middle class. If passed, the plan would be Trump’s first significant legislative win since taking office in January.

“The idea that Trump could be reaching across the aisle, talking about tax cuts to middle and low income households, if it comes to pass, we are talking a pretty material fiscal boost to the US economy. This sort of easy fiscal policy is why the markets are reacting the way they have,” said Mark Dowding, co-head of investment grade at BlueBay Asset Management.

Anticipation of the long-awaited plan helped lift shares in Asia, while a weaker euro pushed European equities higher. A weaker currency is a boon to exporters.

An index of European banks rose 1.5% as the pan-European STOXX 600 share index rose 0.3% to a 10-week high.

Cyclical sectors that had surged on the prospect of “Trumpflation” resulting from the president’s progrowth campaign pledges were the day’s top gainers, with miners up 0.9%.

MSCI’s broadest index of AsiaPacific shares outside Japan dipped 0.1% after trading higher at one point earlier. Tokyo shares closed down 0.3%.

In currency markets, the euro fell 0.4% to a one-month low below US$1.1750. The yen fell 0.5% to 112.82 per dollar and sterling lost 0.3% to US$1.3420 against the resurgent greenback, picking up from as low as US$1.3363. – Reuters