Dollar rate declined because of political events

The dollar fell to a one-week low against the yen as US bond yields fell below 2.4%. Concerns that the corporate tax incentives proposed by President Donald Trump can be introduced gradually, sent the yield of the 10-year Treasury debt securities below 2.40%. According to sources of the Bloomberg agency, some members of the budget committee of the House of Representatives are inclined to reduce the tax from the current 35% by 3 percentage points a year, beginning in 2018. Thus, the rate will reach 20% promised by President Donald Trump by 2022. The Japanese currency soon weakened after the Bank of Japan cut its inflation forecasts, while retaining its monetary incentives. Traders refrained from taking up new positions in the main pairs before the decisions of major central banks this week, including in the US and the UK, and before Trump announced his choice of the next Fed chairman on Thursday.
“This is a big week for the dollar,” said Rodrigo Catherine, currency strategist at National Australia Bank Ltd. in Sydney. “In general, we maintain our forecast of strengthening the dollar, although the decline in the nightly yield of 10-year Treasury bonds below 2.4% has slightly cooled our dollar enthusiasm,” he said. USD / JPY returned to the 113.25 area, which is close to 113.28, the session high, marked after BOJ’s announcement. The pair had previously lost 0.2% to 112.98, the lowest level since October 20. The stops for sale in USD / JPY borrowed bills are displayed in the area remaining around the New York session at around 113.00, according to dealers. Large and option-related bids are displayed in the zone 112.65 / 70. BOJ maintained its yield curve control program, while lowering the forecast of core inflation in 2017 to 0.8% against 1.1% earlier; for 2018 – up to 1.4% against 1.5% earlier. “The persistence of such an inconvenient combination in the form of targeting an annual purchase of securities within the QE by 80 trillion yen and targeting bond yields around 0% indicates that the bank is still worried that if the target falls below 80 trillion yen, the markets will react very sharply, “says Sean Cullough, senior currency strategist at Westpac Banking Corp. in Sydney. “Markets will be fully prepared for another reduction in official short-term CPI forecasts while maintaining a 2% long-term target,” he added.
The yield on 10-year Treasury bonds is 2.37% after falling 4 bp on Monday. US Attorney Robert Müller gave a signal on Monday when he presented evidence that Trump or his team might have conspired about Russia’s intervention in last year’s presidential campaign: an agreement on confession with George Papadopoulos who was an adviser on foreign policy during the Trump campaign. The US Justice Department has charged 12 articles on the former head of the campaign headquarters of Donald Trump Paul Manafort and his business partner Rick Gates. The charges relate, inter alia, to money laundering, tax evasion and the provision of false information to the authorities.
Trump chose “Jerome Powell” as the next chairman of the Fed, wrote the New York Times, citing two unnamed sources familiar with his plans. The Fed under Powell’s management is unlikely to be soft, says Catherine of NAB. “This should be seen as a continuation of the Yellen mantra, so that nothing threatens the path of the fedfond rate, but Powell is in favor of deregulation, so it is positive for the stock market, which means an increase in the yield of US Treasury bonds. The term of office of Janet Yellen expires in February. The second fall meeting of the Fed, which will be held on October 31 and November 1, does not cause a special excitement: virtually none of investors and analysts expect changes in interest rates or new signals about the future of monetary policy in the US.

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