The dollar index slumped to a 4-and-a-half-month low of 98.85 this morning during the European session, US equities also fell, as markets have lost confidence in Trump’s administration to fulfil his promises.
Trump’s first bill proposal since taking office, to repeal Obamacare and replace it with the American Health Care Act, failed on Friday March 24. This is his second failure following the refugee and immigration travel ban. Not surprisingly President Trump blamed the Democrats for the failure.
On one hand, none of Democrats were willing to support the new healthcare bill. On the other hand, the defections within the Republican party were more than the limit of 22. Even Trump had tried to convince his peers on Friday, clearly his warnings and efforts were not effective.
The failure has put an issue on the spot: compared to the Democratic Party’s unity, there seems to be lots of disagreements within the Republican party, and the leadership of Trump and the House Speaker Paul Ryan face severe challenges. The hurdles that Trump’s administration will likely face seem to be more than expected.
President Trump now focuses on his next bill proposal: tax reform, which is a more controversial issue. He promised to cut the corporate tax to 15% during the election. His plan is to make up the reduction of government’s tax income by the decrease of healthcare spending – not an easy task following last week’s failure of the healthcare bill. It is likely the administration will face the same hurdle (Democratic disfavour and Republican disagreements) on the tax reform proposal. Thus, it will be difficult for Trump to keep his promise to reform taxes.
If the tax bill fails to pass the Republican voters’ disappointment might be greatly lifted and the party will likely lose some seats in the 2018 election. USD and US equities still face downward pressure on Trump’s tax plan uncertainty.
UK Prime Minister, Theresa May, will trigger Article 50 of the Lisbon treaty on Wednesday March 29, starting the 2-year Brexit negotiation process with the EU.
Theresa May will formally notify the EU Council President, Donald Tusk. Tusk is expected to present draft Brexit guidelines to the European Union’s 27 member states within 48 hours of the UK triggering Article 50. The member states are expected to hold a Brexit summit within 4-6 weeks. Theresa May’s letter, and Donald Tusk’s response, will likely give markets more clues about the potential difficulties of the upcoming Brexit procedure.
GBP/USD reached 1.2579 the highest the pair has attained since February 9 mainly because of the weakening of USD. The Scottish parliament will vote on whether to hold a second Scottish independence referendum on Tuesday March 28, which is only one day ahead the triggering of the Brexit process. If the result is to hold a referendum, the proposal will be delivered to the UK parliament for voting. In this situation, it will pose more political uncertainties on the UK’s economic prospects and GBP.
UK Q4 GDP final reading will be released this Friday with better-than-expected readings likely providing some support to GBP.