The dollar ended the week on a positive note, the increased pressure across the whole spectrum of the foreign exchange market. One of the reasons for this growth is the adoption of a resolution by the Congress about the formation of the budget of the year 2018. This eliminates a further obstacle to the promotion of the tax reform.
During this time, the budget deficit during the fiscal year ending September 30, 2017 amounts to a symbolic $ 666 billion, or 3.5% of the GD. This is the highest level since 2013. For the year, the deficit increased from $ 79 billion, which is less than recent forecasts. In general, the situation for the beginning of the reforms seems to be quite favourable.
The stock markets closed, on growth, on Friday, the update of the historical documents. The Dow Jones has topped the mark of 23 thousand points for the first time in history. The rally, in addition to the adoption of the draft budget, is due to the overall growth of the world economy and a good start to the results season. A significant number of companies in the S & P 500 index, which have already published their reports, have exceeded their profit forecasts, which, overall, contributes to the growth of positive feeling.
The dollar, therefore, looks like a winner on the background of a significant improvement in the prospects of the reform of the tax, but investors are still reacting quite cautiously. The CFTC report released Friday do not show any positive dynamics for the dollar, which looks a bit unexpected on the background of its significant growth. The important domination 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 the expectations of the overall growth of the global economy. There is no reduction in speculative positions on the euro, which indicates not only the growing expectations for the beginning of the ECB, the reduction of the bond purchasing program, but also a relatively high share of skepticism on the financial results of the next US tax reform.
Released earlier this week, the Treasury’s report on the influx of foreign capital does not show any rush in demand for U.S. assets. The continuous decline of the share of foreigners in the organization of the state obligations in the portfolio indicates a general risk reduction. However, the emergence of capital inflows on the stock market has slowed down. The overall balance is not only considerably higher than the pre-crisis level, but also even worse than the recent explosion of activity in 2015.
The growth of the dollar, therefore, is supported at the moment mainly by the internal reserves, it is a reaction to short-term positive news. The massive influx of investment in the u.s. economy has not yet been observed, which means that the events are yet to come.
Tuesday, preliminary PMI Markit for the month of October is expected. At the present time, there is a significant gap between the Markit and ISM activity in the manufacturing sector. It is scheduled for release on Tuesday, will fill this gap a little where the index Markit show growth which, ultimately, will help support the dollar.
On Wednesday, the event of the week is the publication of the report on durable goods orders, which allows you to evaluate the level of investment, and, indirectly, the activity of consumers. The forecasts are conservative, but in general, the market is of the opinion that the report will show the positive dynamics and the application after the liquidation of consequences of hurricane will grow. The publication, therefore, may also provide support to the dollar.
On a set of criteria, the dollar keeps a positive attitude. The yen and the swiss franc appear to be the most vulnerable. It is likely that they will continue their decline next week and the pound sterling and the euro may even join them.