Uncertainty Clouds Dollar Outlook

The dollar gave ground on Thursday and during the overnight Asian session as concerns about the proposed timelines for the Trump Administration’s ambitious tax reform and infrastructure spending plans encountered new hurdles.  In comments on Thursday, Treasury Secretary Steven Mnuchin failed to provide new details regarding Trump’s tax plan aside from the fact that the Administration wants the measures passed before the August congressional recess.  Despite reiterating the commitment to reform the current tax code, details were sparse apart from the oft repeated middle class tax relief and simplification of business tax reporting.

Furthermore, concerns about infrastructure spending being postponed alongside a smaller probability of March action on interest rates were enough to spur additional losses in the US dollar.  Gold prices pushed higher, climbing to the highest point in months on the back of renewed uncertainty and dollar softness.

After a significant dip in French bond prices recently forced yields significantly higher compared to German bunds on the back of Marine Le Pen’s surge in the polls, the announcement of a new centrist alliance helped ease yields on Thursday.  Emmanuel Macron, the independent candidate who formed a new political party less than a year ago, has found himself polling ahead of Conservative Francois Fillon following his decision to make a pact with Francois Bayrou.

After three failed presidential bids, Bayrou is expected to help the newcomer thanks to his past experience and potential endorsements that could arise as a result.  Even though Le Pen is still expected to win the first round of voting, the new alliance could potentially propel Macron to the presidency depending on how the campaign evolves.  In the meantime, the French CAC 40 closed flat on Thursday, opening slightly lower on Friday.