Talking Points:
- British Pound soars on Brexit deal hopes as UK PM May heads to Brussels
- Japanese Yen, Swiss Franc fall as risk appetite firms in Asia Pacific trade
- US Dollar may rise if wage inflation pickup boosts 2018 Fed rate hike bets
The British Pound outperformed in Asia Pacific trade, building on yesterday’s gains inspired by seemingly brighter prospects for a Brexit deal. Official reports now say that Prime Minister Theresa May will travel to Brussels to meet with European Commission President Jean-Claude Juncker and top EU Brexit negotiator Michel Barnier today.
This allegedly follows a last-minute deal on the fate of the EU/UK border that will soon bisect the island of Ireland. The boundary was all but negligible when both Northern Ireland – a part of the UK – and the independent Republic of Ireland were both EU member states. Failure to secure agreement on this score brought down an almost-there Brexit accord earlier this week.
The Japanese Yen traded broadly lower as Asia Pacific stocks followed Wall Street higher, sapping demand for the standby anti-risk currency. The Swiss Franc also fell in what might have reflected its frequent role as regional Europe haven asset, with demand ebbing amid hopes for a Brexit breakthrough. The New Zealand Dollar turned higher, retracing some of yesterday’s outsized losses.
US labor market data enters the spotlight later in the day. Analysts expect a 195k nonfarm payrolls increase in November, marking a bit of a slowdown from the 261k added in October. The jobless rate is seen holding steady at 4.1 percent, matching a 17-year low. These headline figures seem unlikely to mean much for the US Dollar however considering a rate hike is almost fully priced in for this month’s FOMC meeting.
Average hourly earnings data may see a response however. The on-year growth rate is expected to hit 2.7 percent after sliding to a nine-month low of 2.4 percent last month. A brisk rebound in wage inflation might bolster the likelihood of a steeper rate hike cycle in 2018, even before any fiscal stimulus like tax cuts and infrastructure spending are accounted for. That may send the greenback upward.
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Asia Session
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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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