FX Focus: Dollar gains ground as markets await Trump's 'phenomenal' tax reforms

The dollar was on the front foot against its major rivals on Wednesday (26 April), as investors across the world awaited an announcement from US President Donald Trump on tax reforms later in the day.

While details of the tax overhaul remain scarce on the ground, a report in the Wall Street Journal suggested his proposals will include slashing the corporation tax rate from 35% to 15%. Ahead of the announcement, the dollar was 0.33% and 0.38% higher against the yen and the euro respectively, trading at ¥111.43 and €0.9185 respectively.

The greenback also rose 0.12% and 0.89% against its Canadian and Australian counterparts respectively, to trade at CAD$1.3588 and AUD$1.3386 but was broadly flat against the Swiss franc.

"Although there is the possibility of the dollar stabilizing in the short term if Trump delivers, concerns still linger over the plan being light on details," said FXTM research analyst Lukman Otunuga.

"Even if Trump offers markets the eagerly anticipated insight on tax reforms, recent reports from the US Congress Joint Committee on Taxation suggest that tax reform may reduce government revenues by $2trn over the next 10 years, which may weigh on sentiment."

Should Trump's announcement disappoint, the dollar should nevertheless be guaranteed some support by the Federal Reserve's stance, said Fawad Razaqzada, market analyst at Forex.com.

"No other major central bank is as hawkish as the Fed," he said. "This means that, fundamentally, the dollar should remain supported. The US currency will likely perform best against currencies where the central bank is still dovish, such as the Swiss franc and the euro."

In Britain, meanwhile, the pound recovered from a two-week low of €1.1718 versus the euro to trade at €1.1776, 0.26% higher than the previous session's close, but slid 0.18% against the greenback to $1.2817.

In the first two session of the week, sterling recorded sharp losses against the euro, with the latter boosted by the results of the first round of the French presidential elections, which put Emmanuel Macron, the market's preferred candidate, firmly on track to win the race.

In the absence of any meaningful data and with the rally sparked by last week's announcement of a snap general election in June petering out, investors will focus on the Britain's first quarter GDP report, due out on Friday.

"The pound has held steady against its major peers after a difficult start to the week," said Paresh Davdra of Rational FX.

"After last week saw impressive gains, sterling fell back in response to the rally in the euro following the French election vote. Whilst the French election will be important for the pound's short-term fortunes, in truth it is the UK election which may prove to be the deciding factor in sterling's strength."