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Talking Points:

  • British Pound gains as Brexit deal prospects appear to brighten
  • US Dollar up on Senate tax vote but follow-through may unravel
  • Yen and Swiss Franc aim lower as market risk appetite improves

The day’s offering of European and US economic data seems unlikely to translate into FX market follow-through. The British Pound may shrug off the UK Construction PMI survey for the same reasons that the US Dollar looks past statistics on factory orders and durable goods orders. The results almost certainly mean little for near-term BOE and Fed policy bets, and so might pass without fireworks.

That seems likely to put sentiment trends at the forefront. Futures tracking the FTSE 100 and S&P 500 stock indexes are pointing unambiguously higher before London and New York come online, hinting at a decidedly risk-on mood. That probably spells continued trouble funding and otherwise anti-risk currencies like the Japanese Yen and the Swiss Franc, building on losses sustained in Asia Pacific trade.

The chipper seems mood seems to stem from two main drivers: fresh optimism about US fiscal policy prospects and a brightening Brexit outlook. The Senate passed their version of a tax cut plan Friday while the Times reported that negotiators have reached agreement on an EU/UK “divorce bill” and stand on the cusp of an accord on the post-separation role of the European Court of Justice (ECJ).

This has understandably buoyed the greenback and Sterling alike. Absent a major pivot in the narrative in the coming hours, both currencies have scope to extend gains. The former appears to be more vulnerable to disruption than the latter however following news that Special Counsel Mueller has extracted a guilty plea and key testimony from former national security advisor Michael Flynn.

While the Friday’s Senate vote is certainly an incremental victory, reconciling that plan with the version approved in the House of Representatives and then navigating the compromised bill through both chambers will be difficult. If Republican lawmakers must simultaneously contend with an existential challenge to their party’s presidential administration – be it real or perceived – the task may prove to be impossible.

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Asia Session

British Pound Aims to Extend Gains, US Dollar May Stumble

European Session

British Pound Aims to Extend Gains, US Dollar May Stumble

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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