Dollar rises slowly as market awaits Trump’s tax plans

On Tuesday, Trump is set to make his first major policy address to Congress. It is anticipated that it will include some of the details of his infrastructure spending and tax plans, yet some market participants are worrying that due to a lack of new direction there could be a disappointment for investors and it could weigh on the dollar.

Treasury Secretary Steven Mnuchin noted on Sunday in a televised interview that Trump will use the event to preview some of the elements regarding his sweeping plans to cut taxes for the middles class, simplifying the tax systems, and making American companies more internationally competitive with lower rates and with changes to help encourage U.S. manufacturing.

There was an increase of 0.2 percent for the dollar to 112.20 yen after it dropped as low as 111.920 yen earlier in the session, its lowest level since February 9.

The euro remained steady on the day at {currency}1.0562, as the concerning regarding the upcoming French election continued to weigh on the single currency.

While the current polls are indicating that Marine Le Pen, leader of the National Front, is losing either to right-wing Francois Fillon or centrist Emmanuel Macron, investors have not counted her out, and many of them fear that she could direct France out of the eurozone.

“Trump’s tax plan and the French elections are the leading themes now,” according to Masafumi Yamamoto, Mizuho Securities’ chief forex strategist.

“I think that ahead of Trump’s speech, the dollar is most likely to drop again below 112,” he noted. “What is surprising today is the sterling’s weakness. The Scots want to have another referendum, so that is probably weighing on the sterling.”

The sterling slipped 0.4 percent to {currency}1.2425.

The dollar index that tracks the U.S. unit against a basket of six major rivals having benefited from the weakness of the sterling and it rose up 0.1 percent to 101.16 (DXY).

There is growing confidence in the Scottish government that it can win a new independence referendum and it is contemplating calling one next year as Britain exits the European Union, according to sources close to the Edinburgh administration.

“Some of the people may say that the Scottish developments could lead to a stronger yen,” which usually benefits from risk aversion by investors, said senior currency strategist Masashi Murata, at Brown Brothers Harriman in Tokyo.

“However I don’t believe so because with the stronger global economy, not as many people would like to sell the dollar, and also the French presidential election is not a reason either to purchase the yen,” he said. “My sense is that for now, the dollar is stable.”

In recent weeks, the lower U.S. Treasury yields have weighed on the greenback.

Last week, the yield on the benchmark U.S. 10-year note dropped to five-week lows. On Monday, it stood at 2.331 percent (US10YT=RR), in comparison with Friday’s U.S. close of 2.317 percent.

Putting pressure on U.S. yields, on Friday the economic data showed that the new home sales grew less than was expected in January. There was a weakening of consumer sentiment, though it remained at a level that was consistent with a healthy pace of consumer spending.

The speculators have not counted the dollar out. According to the data that was issued on Friday by the Commodity Futures Trading Commission and the calculators by Reuters, they increased the bullish bets on the U.S. dollar for the first time in seven weeks. [IMM/FX]

The value of the dollar’s net long position totaled {currency}15.02 billion in the week ended February 21, an increase from {currency}14.99 billion in the previous week.

Additionally, the CFTC data also indicated net shorts of 50.162 Japanese yen contracts, the lowest in over two months.