Stocks recovered while the dollar hovered above four-month lows on Tuesday as anxiety over Donald Trump’s setback on healthcare reform gave way to tentative hopes for the U.S. president’s planned stimulus policies.
Hopes that the Trump administration will now prioritize tax reforms coupled with still-robust economic data and corporate earnings forecasts spurred some investors to look past creeping doubts about Trump’s ability to deliver on campaign promises.
The dollar index against a basket of major currencies was trading almost half a percent above Monday’s four-and-a-half month low at 99.252 .DXY, but up just 0.1 percent on the day after a volatile session in Asia.
Europe’s STOXX 600 rose 0.1 percent helped by financials and pharmaceutical stocks. Stock futures on Wall Street ESc1 SPc1 were little changed.
“Risky asset markets have rebounded from yesterday’s opening low, supporting our view of the current market setback as a risk pause and not a turning point toward generally lower risk valuations,” analysts at Morgan Stanley said in a note to clients.
The Trump administration’s failure to undo Obamacare raised concern among investors that planned tax reforms face a rockier road though Congress. The White House said it would take the lead in crafting legislation to overhaul the tax code, adding: “We’re going to work with Congress on this.”
Morgan Stanley said that given some of the savings that were to come from replacing Obamacare would be lost, the upcoming tax reform may turn out to be a smaller package or result in a higher fiscal deficit.
Talk of more rises in Federal Reserve interest rates this year helped halt the dollar’s slide after its worst week since Trump’s election.
Analysts said appearances by Dallas Federal Reserve Bank President Robert Kaplan and Chicago Fed chief Charles Evans that put the emphasis back on the prospect of more rises in U.S. interest rates gave support to the U.S. currency.