Higher US taxes weaken dollar

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US Treasury Secretary Janet Yellen is calling on business leaders to pay higher taxes to support the recovery of the US economy following the effects of the coronavirus pandemic on the country. At the same time, Ms. Yellen said that the problems with the remuneration of employees are partly due to the lack of influence of trade unions in the US and corporate companies should welcome global competition. In her speech, Secretary Yellen, the former head of the US Federal Reserve, said that tax reform in the US is necessary.

According to economic correspondents, her speech shows that not only is tax reform necessary, but also that higher corporate taxes in the USA must be introduced and most likely will be introduced – which are at an all-time low – with regard to corporate income tax representing only about one percent of the total gross domestic product (GDP) of the United States. From this point of view it is clear that a significant part of government spending will be paid by taxpayers in various indirect taxes, including excise duties. Most of the tax burden is borne directly by US citizens themselves, which the Biden administration wants to alter. As a result of this signal of an early increase in taxes, especially for legal entities, the US stock market recorded a decline of the US dollar (USD) against other major world currencies on the international foreign exchange – Forex market.

On 19 May 2021, the US Dollar Currency Index (DXY), which compares the value of the USD against six major world currencies, has seen the USD at a price level below 90. According to this index, at 6:54 am CET it was at 89.76, with a slight increase of +0.01% so far. Planned changes in US tax reform and its impact on the corporate sector also had an impact on the euro (EUR) when it recorded a strengthening of this currency above the mutual exchange rate of US$ 1.22 per EUR. At 7:06 am CET, the EUR/USD global currency pair traded at a mutual exchange rate of US$ 1.223 per EUR with the current daily growth of the EUR by +0.09% of the exchange rate against the USD.

According to analysts and financial strategists, a continuing business trend of strengthening the single European currency – the EUR – against the USD can be expected unless EU central banks and the European Central Bank (ECB) intervene. For now, according to these experts, no such intervention from the ECB is expected.

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