Sterling, euro gain as dollar dips Sterling, euro gain as dollar dips Sterling, euro gain as dollar dips

Sterling, euro gain as dollar dips

Picture of John Hardy
John Hardy

Head of FX Strategy

The US dollar sank yesterday for no readily identifiable reason, but perhaps on a bit of position squaring as China’s currency strengthened and ahead of today’s European Central bank and Bank of England event risks. Hope that we are finally winding our way to a Brexit deal has helped both the euro and sterling, though as we have discussed recently, uncertainties remain. We are hopeful as well and suspect high probability that something gets done ahead of the mid-November EU summit, but would prefer to express a view through options – for example, EURGBP put spreads rather than in what could be a very volatile spot market any time the UK political situation appears at risk of derailing the progress toward a deal.

The EU has taken the unprecedented step of voting to censure Hungary for its move away from EU guiding principles like the rule of law. Hungary’s Prime Minister Orban won elections in a landslide earlier this year and has promised a thorough review and change to the country’s constitution, which has already been revised once under his leadership and included changes that weakened the judiciary and the independence of the press. The forint was sharply lower in these latest developments, but the weaker USD yesterday saw nearly all emerging currencies putting in a strong performance. The row between the EU and Hungary is a long-standing one and it would only be at the point that real sanctions against Hungary’s behaviour threaten capital flows and foreign direct investment that  a more profound move in the currency is a risk. Nonetheless, it all adds to the noise on the EU existential risks, the CEE/core fault-line, and whether the far larger Poland continues to copy Hungary’s governing model.

The Turkish central bank is set to announce rates today, with widespread expectation for a 300+ basis point hike of the key repo rate, taking the rate to 21%. The TRY has managed an extended bout of stability and a softer US dollar yesterday was wind at EM currencies’ back. That rate meeting today looks like a litmus test for investor confidence in the more fragile EM currencies.

Former dove and now hawk Lael Brainard of the Federal Reserve Board of Governors delivered a rather hawkish speech yesterday in which she more directly indicated that an inverted yield curve would not prevent the Fed from hiking rates and didn’t necessarily mean that a recession is imminent. She indicated that the Fed rate hike cycle could extend over the next year or two. If she is right, and the Fed continues the every other meeting pattern for, say, 18 months, including two the two hikes later this month and in December, the Fed Funds terminal rate will be above 3.5% in early 2020. A speech from Brainard some months ago already indicated in rather indirect language that longer rates might be excessively low for reasons dissimilar to the past, indicating a lack of concern about yield curve inversion already then. Fed rate expectations have pulled to the highest for the cycle, but this speech was no fresh catalyst.

The Fed’s Beige Book, meanwhile, was also released last night and was a mixed bag, with many of those surveyed enjoying strong current conditions but fretting new trade tariffs and implications for input costs. 

Up today we have an ECB meeting at which the ECB will roll out its latest forecasts. The lack of apparent inflationary pressures has many looking for a dovish spin in the forecasts, although the forward guidance on tapering and an eventual rate hike after next summer are not likely to see major shifts. Hard to see this meeting as major catalyst. The Bank of England is mostly a formality and I don’t see the need for Carney and company to send any further signals at this point. In the US, the CPI release today is the key data point for the week.


We have laid out our thesis that the recent powerful rejection of the run below 1.1500 was a bullish development, but subsequently, the implications of that reversal have been watered down by the amount of time that the pair has been stuck in neutral, meaning bullish conviction has ebbed again. Traders looking for a bigger move may have to sit on their hands here, with the downside level more clearly etched around 1.1500, while the upside levels are bit hazier, arguably a pivot zone of 1.1750-1.1800 needing to be cleared to launch EURUSD on a run to 1.2000 and higher again. Today’s ECB meeting and US CPI releases are a great tactical test of whether traders can gin up any conviction.
Source: Saxo Bank
The G10 rundown

USD – the greenback on its back foot, though the rate outlook is quite supportive for additional strength with positioning perhaps the chief hurdle for further gains. Continue to watch CNY and US 10-year yields around that 3.00% level as major coincident indicators as the US August CPI release is rolled out later today.

EUR – we discuss the euro chart above, but if we are about to lurch into another episode of risk on, led by emerging market currencies (not our thesis, but there is room for a relief rally), then the euro will likely languish in the crosses as the focus is elsewhere.

JPY – the yen not enjoying this environment as yield rises pressure the currency in the crosses – USDJPY upside interest only picks up notably if the entire US yield curve can lift.

GBP – we may have to wait for next week for signals from the EU and UK Prime Minister May on a possible Brexit deal. For now, it appear the Tory rebels are trying to mount a revolt so there is plenty of two-way risk if she is ousted.

CHF – the EURCHF bulls may see the solid recent bullish reversal in EURCHF as worth scooping up as long as we remain north of 1.1200, and as long as the Italian yield situation remains dormant.

AUD – a positive employment report helps for the moment, but the AUDUSD bounce so far fading at around the 0.7200 resistance as we await further key US event risks. Yield spreads suggest we should be trading much lower, but speculative positioning is a bit crowded, making for halting progress lower.

CAD – another spike higher in oil prices inspires a try through the pivotal 1.3000 level in USDCAD – that’s an important one for the bulls in a very messy chart.

NZD – the kiwi fading wilting before the Aussie’s modest rally as it should from a rate spread perspective. Next week’s NZ GDP release is perhaps the next catalyst.

SEK – a decent leg up for the krona as it is tough to argue whether either weak minority coalition scenario will mean much in the way of policy. Meanwhile, the rising Swedish short yields are a boost. Without general risk appetite mishaps, EURSEK could manage a move all the way back to the 200-day SMA, currently around 10.21. 

NOK – a big move in NOK inspired by technical rejection of the run higher, the rallying SEK, and stronger oil prices. Unlikely to maintain this kind of momentum, but a move back into the 9.50-40 zone would seem a reasonable prospect. 

Upcoming Economic Calendar Highlights (all times GMT)

● 1100 - UK Bank of England Rate Announcement
● 1100 - Turkey One-Week Repo Rate Announcement
● 1145 - ECB Rate Announcement
● 1230 - ECB Press Conference with President Mario Draghi
● 1230 - US Aug. CPI
● 1230 - US Weekly Initial Jobless Claims
● 1700 - US Fed's Bostic (FOMC Voter) to speak

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.