he Republican controlled Congress voted 51 to 49 in favour, with unsurprisingly not a single Democrat supporting the motion. President Donald Trump’s tax overhaul, which will now need final approval from the House of Representatives on Wednesday, would be the largest in the country since Ronald Reagan’s Administration over 30 years ago, should it receive final approval.

Despite the news, the US Dollar index actually declined relatively sharply yesterday evening. The currency hovered around a two week low against its major peers due to the unexpected procedural hiccup that requires a vote from the House. While the widespread tax reforms are expected to pass by the end of the year, investors have also become doubtful that it will materially boost economic growth in the US.

Yesterday afternoon’s housing data in the US was overwhelmingly positive, although investors mostly overlooked it with all eyes on the tax bill vote. Housing starts and building permits both jumped more than expected in November, suggesting that the housing market in the US is on course to end the year on a high note. Existing homes sales will be released in the US this afternoon, although are unlikely to shift the greenback. We instead await Thursday’s revised GDP data for the third quarter, with any surprises here likely to impact the currency.

Sterling and Euro rally ahead of House of Representatives vote

Sterling was on the back foot throughout much of the trading on Tuesday, spending most of the day treading water as optimism over progress in the Brexit negotiations last week continued to wane. It did, however, recover strongly to end the day higher against the greenback, although this was driven entirely by news on the US tax reform. This week is a very data light one in the UK, with Friday’s GDP figures the only announcement likely to influence the Pound, baring Brexit developments and news elsewhere.

Meanwhile, yesterday morning’s IFO business sentiment data in Germany came in mostly in line with expectations. The business climate and expectations indexes both came in slightly below consensus at 117.2 and 109.5 respectively. However, the current assessment index did tick up to 125.4, suggesting that businesses are comfortable with the existing economic climate, although are wary about downside risks ahead. The Euro was mixed following the release of the report, although much like the Pound rose sharply on US Dollar weakness yesterday evening, jumping to a four day high.

Today will be a relatively quiet day in the Eurozone as we approach the winter holidays with current account data and a speech from ECB member Weidmann the only announcements on the docket for today.