Rumors on Biden's tax plan led to brief downturn on equity markets on Thursday. Preliminary information indicates that the key target of taxation will be capital gains, which is why equity markets reacted with a sharp sell-off:

The tax reform purports to reduce the difference between tax rates on labor income (wages) and income from financial assets. Biden believes that this is unfair, and judging by the growth rates of wages and S&P 500, he may be absolutely right.

Bloomberg reports the capital gains tax rate for the rich could roughly double. Together with an additional tax on investment income, the federal government's tax burden could be 43.4% for this group of people.

The second goal of the reform is, of course, to make long-term fiscal path more stable. By the way, the Treasuries reacted positively to the news, as the risks of untenable fiscal policy in the United States probably decreased on expectations of growth in government revenues.

Biden's tax plan has not yet been fully factored in the prices of risk assets, since the official version has not been released to the public yet. Nevertheless, we can already say that there is a reason to sell on the market. Yesterday we saw the initial reaction, but a continuation is very likely, as the details of the plan may have many more bearish surprises.

In the medium term, US stock market will become less attractive for foreign investors, in addition, the tightening of fiscal policy will enter the inflation equation with a negative sign, so the Fed may not rush to taper asset purchases. The net effect for the dollar in this perspective is, of course, negative.

Looking at the short term, the dollar index made two unimportant rebound attempts this week, which were quickly stopped. On the side of the main opponents, the Euro and the Pound, quite strong economic data for April came out this week. Take, for example, the growth of retail sales in the UK by 7.2% (3.5% forecast) in annual terms. This testifies to the great progress of the country in the process of lifting restrictions. We also saw quite good data on the European economy: the PMI indices for April more than met expectations. The German PMI in the service sector failed a bit. This tells us that the recovery among the developed countries is becoming more synchronous and dollar assets are losing the advantage. Biden's tax plan reduces the risk of overheating the American economy and inflation, so the Fed has even less reason to rush to raise rates. In this regard, next week, we will probably see a dollar negative rhetoric at the meeting of the US Central Bank.

EURUSD is likely to resume its uptrend in the first half of next week, testing the 1.21 level:

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