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Slow and steady does it! The Greenback edged higher for the most part of the session thanks to upbeat PPI, FOMC expectations, and tax reform progress.

  • U.S. NFIB small business index up from 103.8 to 107.5 vs. 104.6 forecast
  • U.S. headline PPI up by another 0.4% in Nov as expected
  • U.S. core PPI posted 0.3% gain vs. projected 0.2% uptick
  • U.S. federal budget deficit widened from $63.2B to $138.5B
  • House Republicans proposed delay on Obamacare taxes
  • Republican Senator Cornyn: No deal yet but getting closer, can get done by Christmas
  • Republican Senator Rand says he won’t support the tax bill
  • Australia’s Westpac consumer sentiment index rebounded by 3.6%

Major Events/Reports

Tax reform updates

So far so good on the tax reform front as members of the House and Senate are hammering out a unified version of their respective versions of the tax bill.

Word in Washington is that lawmakers are seeing eye to eye when it comes to the following:

  • Lowering the corporate tax to 21% starting 2018
  • Bringing the top individual rate down to 20%
  • Mortgage interest deduction for loans up to $750,000
  • Setting the pass-thru deduction at 20%

However, House Republicans are suggesting a delay in taxes under Obamacare, particularly when it comes to taxes on medical devices and those on generous health insurance plans or the so-called “Cadillac tax”.

You see, Republicans are trying to hit two birds with one stone by getting federal funding adjustments through with tax proposals. The funding bill must actually be passed by December 22 to avoid a partial government shutdown, and they’d need to get support from a few Democrats to succeed.

Over in the Senate, Majority Whip John Cornyn admitted that they haven’t come up with a deal yet but that they are moving closer, possibly even getting it done before Christmas.

But before dollar bulls could make it rain, Senator Rand Paul shared on Twitter that he will vote against this legislation.

Still, keep in mind that GOP Senators can afford to let a couple of votes slide since they don’t need to secure a super-majority to get the tax bill through. (cue: House of Cards opening credits)

Pre-FOMC positioning

Market participants continue to adjust their dollar holdings ahead of the FOMC announcement in which almost everyone and his momma expect a 0.25% hike.

This hawkish sentiment drew some support from positive PPI readings, with the headline figure posting another 0.4% gain as expected and the core reading up by 0.3% versus the projected 0.2% uptick.

On a year-over-year basis, producer prices are up 3.1% in November, which is its fastest pace of increase since January 2012. This signals upside inflationary pressure as producers typically pass on higher costs to consumers.

A couple of equity indices shot up to record highs, but one closed in the red:

  • Dow 30 index is up 118.77 points to 24,504.80 (+0.49%)
  • S&P 500 index is up 4.12 points to 2,664.11 (+0.15%)
  • Nasdaq is down 12.76 points to 6,862.32 (-0.19%)

Major Market Mover(s):

USD

The scrilla erased its losses from the earlier session as positive developments in tax reform and anticipation for the FOMC decision buoyed it higher.

Later in the day, the dollar returned a few of those gains and Senator Paul’s remarks on voting against the tax bill are being blamed.

EUR/USD fell from 1.1787 to a low of 1.1717 before bouncing to 1.1747, USD/JPY rallied to a high of 113.75 then retreated to 113.46, GBP/USD slipped to a low of 1.3303 then pulled up to 1.3327

 

Watch Out For:

  • 11:50 pm GMT: Japanese core machinery orders (+3.1% expected, -8.0% previous)
  • 12:00 am GMT: RBA Assistant Gov Kent’s speech