USD: Corporate tax discussion in focus – ING

Trump’s day two in office was dominated by the threat to reshape tax systems for multinational companies. As part of a memorandum originally published on Monday, the president is tasking the US Treasury with investigating discriminatory taxes on US citizens or corporations, ING’s FX analyst Francesco Pesole notes.

New layers of uncertainty for markets to contemplate

“Along with the floated possibility of withdrawing from the OECD agreement on a minimum corporate tax, the US is considering double taxation on some foreign individuals and companies established in the US. It is admittedly hard to draw conclusions on how tangible this threat is, or the implications for US and foreign corporations for now. It is likely another layer of uncertainty to which markets are getting accustomed.”

“On the hot tariff topic, the focus has remained on Canada and Mexico after Monday’s threat to impose 25% tariffs. After another round of dollar weakness in yesterday’s US session, CAD and MXN are now trading around 1% stronger compared to Friday. We read that as a signal that markets are still reluctant to price in the full extent of the tariff impact, and perhaps still hanging on to hopes that tariffs will be delayed further on the back of some cooperation on migration. Downside risks for both CAD and MXN remain elevated.”

“Today’s US calendar only includes the Leading Index and MBA mortgage applications, which in the week ending 10 January (published last week) jumped 33%, the highest since March 2020. We’ll see whether markets have the will take 10-year Treasury yields back to 4.50%, which can add to the dollar’s soft momentum. Our rates team remains bearish on UST beyond the very near term, and that fits our view that the dollar can withstand temporary positioning squeezes.”