The dollar climbed for the second day in a row on Tuesday, as investors funnel bullish bets out of Europe, amid heightened political uncertainty in the region. The US has also been supported by expectations of US tax reform, in which investors hope will entice economic growth.
The dollar, when compared against a basket of its peers, rose 0.58% on Monday. While the rally has eased as we veer closer to the US trading session, the dollar is now 0.2% weaker against the euro, the dollar has accumulated some value after a lacklustre year. The greenback has lost 8.3% this year, despite the hawkish stance of the Federal Reserve.
The faltering manufacturing sector showed signs of growth in September, thanks to the devastating effects of the hurricanes which smashed into the US last quarter. ISM Manufacturing PMI came in at 60.8 for September, compared to expectations of 57.9 and August’s result of 58.8. September’s reading was the highest on record since January 2004.
Additionally, the revival of the Trumpflation may be on its way. Congress are currently mulling over the biggest US tax reform plan since 1986. Trump has laid out a plan to slash corporation tax and simplify the US tax code (get the full details here).
Meanwhile, the odds for a December rate hike resides at about 70%, that’s up from 42% last month as Federal Reserve members fan the notion that the US economy is ready for an increase to the cost of borrowing.
Finally, bullish sentiment for the dollar has been inspired by increased tensions in Europe. The Catalan independence referendum has caused unrest in the region, urging caution amongst investors. This, as well as the disappointing results from the German election, an unclear path for Brexit and rising populism in the eurozone has caped gains for the single currency. The euro’s rally this year has been one of the biggest drawbacks to the dollar. Now that investors are pulling back from the currency bloc, the dollar has begun to flourish.