The US Dollar Comes Back Bid After Being Squeezed Yesterday

In the 19th-century, tariffs were the main source of the federal government's revenue. With the liberalization of trade, this source dried up. Corporate and household income tax became necessary in the age of free trade. Tax schedules can be misleading due to exemptions and loopholes, and the like. In 2019, the tax/GDP ratio in the US was 24.5%, according to the OECD. The OECD average was 33.8%. The Biden administration's American Jobs Plan (aka infrastructure plan) calls for repealing the 2017 corporate tax cut. At the same time, not coincidentally, the US endorses OECD efforts to negotiate a minimum corporate tax. There seems to be a common element in the framing of Biden's foreign economic policy: the convergence of values and interest. Treasury Secretary Yellen explicitly framed the issue of helping developing countries fight covid in these terms. She pushed the traditional American position that stable and prosperous countries tend not to be security threats to the US. She could also have recognized that virus mutations in other countries can come back and overwhelm the current vaccines. Negotiating one will still prove to be an arduous task, and the low-tax centers like Ireland (12.5%) will be loath to have higher tax forced on them from the OECD, let alone the EU. Hungary's corporate tax rate is 9%, and Lithuania's is 15%. According to one study, 80 countries have corporate tax schedule rates of less than 20%.  

Canada and Mexico's economic diaries are light today, and there is only one Fed speaker (Barkin). The IMF/World Bank will present updated forecasts as their meetings get underway. The US dollar posted an outside down day against the Canadian dollar yesterday and fell to a two-week low near CAD1.2500. As was the case against other currencies, there has been no follow-through selling of the greenback. It is testing the middle of yesterday's range (~CAD1.2550) in the late-morning turnover in Europe. Resistance is seen closer to CAD1.2600. After trading at its lowest level since mid-February (~MXN20.23), the US dollar rebounded yesterday and traded as high as MXN20.38. It remains firm, even if it has not made new highs (yet). There does not appear to be meaningful resistance ahead of MXN20.50.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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