GBP/USD is showing little movement on Wednesday, as the pair trades at 1.2840. On the release front, there hasn’t been much data for the markets to analyze. There are no British releases, and the sole US event was Crude Oil Inventories. The weekly indicator came in at -3.6 million barrels, compared to the estimate of -1.1 million. On Thursday the US releases two major indicators – Core Durable Goods Orders and unemployment claims.
The negotiations between Britain and the EU are expected to be lengthy and difficult, and EU leaders don’t appear to be in a generous mood, as they met in Brussels on Monday to discuss a united front in the Brexit talks. Britain wants any deal to include financial services, but the Europeans are working on a draft that would exclude the financial sector unless it is governed by EU rules. There are also likely to be sharp disagreements over the size of Britain’s debt to the EU, among other major issues. For now, the British government is concentrating on the June election, but after that things could get nasty between the sides. If the Brexit talks run into trouble, market sentiment could take a dive and that could spell trouble for the British pound.
One of President Trump’s key campaign planks was tax reform, both for corporations and individuals. Trump is expected to make a key announcement about his tax proposal on Wednesday. Of particular interest to the corporate sector, Trump is expected to propose reducing the corporate tax rate from 35% to 15%, and lowering the tax on multinationals’ overseas profits from 35% to 10%. Any tax reform proposals from the White House will require a stamp of approval from Congress, so Trump’s proposal should be viewed as a blueprint that is a long way off from becoming law. It will be interesting to see the reaction to Trump’s tax plan. Trump’s first 100 days in office have been rocky, so it will be a significant step forward for the president if Congress and the stock markets give a thumbs-up to his plan. However, if the president is short on details, as has often been the case, the ensuing disappointment from investors could send the dollar downwards.
US consumer confidence levels remain high, but there was some disappointment as CB Consumer Confidence dropped to 120.3 in April, missing the estimate of 123.7. The softer than expected reading boosted the euro in the Monday session. What is troubling analysts is that strong consumer confidence numbers have not translated into increased consumer spending, a key component of economic growth. This trend has been labeled the "hard/soft discrepancy" (confidence being ‘soft’, while actual spending being ‘hard’). This was underscored in March retail sales numbers, which came in at a flat 0.0%, shy of the forecast. Next up is Preliminary GDP on Thursday, which is expected at 1.3 percent. An unexpected GDP reading could have a sharp impact on EUR/USD.
