The dollar finished the week on a positive note, increasing its pressure across the entire spectrum of the foreign exchange market. One of the reasons for this growth is the adoption of a resolution by Congress regarding the formation of the budget for the fiscal year of 2018. This eliminates another obstacle to the promotion of tax reform.
Meanwhile, the US budget deficit in the fiscal year ending on September 30, 2017 amounted to a symbolic $ 666 billion, or 3.5% of the GD. This is the highest level since 2013. For the year, the deficit grew by $ 79 billion, which is less than the recent forecast. In general, the situation for the beginning of reforms looks quite favorable.
Stock markets closed on growth on Friday, updating historical records. The Dow Jones overcame the mark of 23 thousand points for the first time in history. The rally, in addition to the adoption of the draft budget, was due to the overall growth of the global economy as well as a positive start to the reporting season. A significant number of companies from the S & P 500 index, who have already published their reports, have exceeded their profit forecasts, which on the whole, contributes to the growth of positive sentiment.
The dollar, thus, looks like a winner on the background of a significant improvement in the prospects for tax reform but investors are still reacting quite cautiously. The CFTC report published on Friday does not show any positive dynamics in favor of the dollar, which looks somewhat unexpected on the background of its noticeable growth. The significant dominance over its counterparts retained the Canadian and Australian dollars, which is supported not only by the rise in oil prices and the achievement of record prices for industrial metals, but also by expectations for the overall growth of the world economy. There is no reduction in speculative positions on the euro, which indicates not only the growing expectations for the start of the ECB’s reduction of the bond buying program, but also a relatively high share of skepticism about the expected financial results of the upcoming US tax reform.
Published earlier this week, the Treasury’s report on the inflow of foreign capital does not show any rush demand for US assets. The continued reduction in the share of foreigners in the state agency bonds portfolio indicates a general risk reduction. However, the emerging capital inflow to the stock market has slowed. The overall balance is not only significantly worse than the level of pre-crisis years but also even worse than recent bursts of activity in 2015.
The growth of the dollar, therefore, is supported at the moment mainly by internal reserves, that is, a reaction to short-term positive news. Massive inflow of investments into the US economy has not yet been observed, which means that the main events are still ahead.
On Tuesday, a preliminary index PMI Markit for October is expected. At the moment, there is a big gap between the Markit and ISM indexes for activity in the manufacturing sector. It is projected that the publication on Tuesday will close this gap a little wherein the Markit index will show growth, which in the end will support the dollar.
On Wednesday, the key event of the week is the publication of the report on orders for durable goods, which allows you to assess the level of investment, and indirectly, consumer activity. Forecasts are cautious but in general, the market is of the opinion that the report will show positive dynamics and demand after the liquidation of the consequences of hurricanes will grow. The publication, therefore, can also provide support to the dollar.
On a set of criteria, the dollar maintains a positive attitude. The yen and the franc seem to be the most vulnerable. It is probable that they will continue their decline next week and the pound and the euro can even join them.