GBP risks increase as Brexit minister resigns GBP risks increase as Brexit minister resigns GBP risks increase as Brexit minister resigns

GBP risks increase as Brexit minister resigns

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The resignation of UK Brexit minister Dominic Raab has weakened sterling this morning as this dramatically escalates the risk of a chaotic situation ahead of the March 29 Brexit deadline.

Note: just before going to press we get the news that Dominic Raab, the UK Brexit minister has resigned – this obviously heavily colours the Brexit discussion of today’s post and dramatically raises the risk of a Prime Minister being ousted or resigning. 

The situation with the draft Brexit deal is very fluid at the moment, as UK Prime Minister May has to survive the risk of a party revolt in the very nearest term and even if she does, faces the risk of an inability to ram the deal through parliament if a large contingent of the Tory “ERG” rebels vote against. The Northern Irish DUP party has already made clear that it feels betrayed and will not vote in favour.

The deal itself does offer the UK essentially what it wanted: a customs union deal with no freedom of movement for immigrants, but the Tory hardliners see the deal as a loss of UK sovereignty because they have lost a vote in the EU and not gained enough elsewhere.

The EU has now gone as far as setting the date for a dedicated Brexit summit for November 25 to formalise the deal, which will then require a parliamentary vote some time in December, but the question is whether the deal is dead on arrival at that vote. 

The Labour gambit is to hope that the Tories self-destruct and they can swoop in and take power in an election and perhaps call a second referendum (I don’t get this – many Brexit voters are traditional Labour voters). Corbyn has offered no credible alternative Brexit vision and looks like a pure opportunist here. It’s all a mess and we have to boil it down to roughly three potential paths from here:

The May miracle: Theresa May survives the confidence vote and engineers a miracle, perhaps ramming through a key few changes to the deal at the Brexit summit  on the 25th to keep the language sufficiently vague on future negotiations to keep most of her party on board, meaning only a few Labour Leave votes are needed to deliver the Brexit under this deal. The threat of chaos could move the EU on key points if it is clear that the deal won’t pass as currently written.

May survives, but the deal doesn’t: In this scenario, the Tories fail to mount a challenge to May’s leadership and the Brexit summit moves forward, but the eventually deal fails a parliamentary vote. This creates an ugly situation as time is running short into March 29, and might require an emergency extension of the exit date to avoid the embarrassing spectre of customs inspections and goods (think especially food and medicine) shortages in the UK.

May is ousted or May resigns: this would throw the situation immediately into chaos, with snap elections likely on the menu and the status of the entire Brexit deal thrown into doubt – this is the most immediately sterling negative (as the question arises – is this a "either no-deal exit or Corbyn government”. 

And one word of warning on sterling upside potential – if we do end up with the prospect of a Corbyn government, this could quickly curtail sterling upside potential even if a path reemerges of avoiding Brexit (can’t see how this is possible) on the concern that the reddest government since the pre-Thatcher era would prove an economic disaster.

Elsewhere, we have a rather weak US dollar on our hands as Fed rate hike expectations have been lowered a few notches, at least in part on yesterday’s tepid US CPI report (and the idea that lower oil prices will feed slower inflation in coming months) and on a Powell speech yesterday at the Dallas Fed. Some saw Powell’s speech as a change of heart as he enumerated a number of risks from here, but his description of the current economy and financial conditions suggest still strong optimism and satisfaction with the Fed’s current policy as he said that balance sheet reduction is going “very well”.


AUDCAD has seen a remarkable run from near 0.9100 to 0.9600+, in part on an unwind of crowded AUD speculative shorts as the market hopes we are headed toward a US-China trade deal, but also on the ugly sell-off in oil prices that has weight on CAD in the crosses. The bounce looks justified, but I would suggest it is getting overdone unless we see a more profound improvement in the US-China relationship than I am anticipating in the wake of the Xi-Trump meeting at the G20 in a couple of weeks. For now, we’ll watch for signs of mean reversion in this pair, something that it has a history of doing. 

Source: Saxo Bank
The G-10 rundown

USD – US dollar upside pushed back on the unwind in Fed expectations of the last couple of sessions – but not yet convinced that there are legs on this move. 

EUR – yes, EURUSD has squeezed back above the clear 1.1300 level that was the former support, but the pair is still in a descending channel and the bear doesn’t look fully challenged unless we pull all the way back above 1.1500. Any ugly Brexit chaos scenario could well rub off on the euro to a degree as well – and we still have the Italian budget sword of Damocles hanging over the EU.

JPY – USDJPY still within the range – we will likely need the market to revert back to pricing more Fed rate hikes to get any liftoff potential above the key 114.50 level. The chart is boring unless we challenge below 112.00 again.

GBP – sterling weakening as the resistance to the current deal is quite clear from Tory hard-liners and the DUP. Sterling will have a hard time putting in a convincing rally in the near term if it is feared that the choice is the Scylla and Charybdis of “no-deal Brexit” vs. Corbyn government.

AUD – the solid jobs report overnight adding to the AUD squeeze – this move looks very mature in some of the crosses, but there could yet be more upside short term if Trump and Xi manage to chum it up in Buenos Aires at the G20. Further out, this won’t stop the ugly unwind in the Australia housing market.

CAD – USDCAD trying to maintain altitude for a go at the sub-1.3400 highs for the cycle, but the volatility of the US-CA rate spread has been uninspiring.

NZD – kiwi relative strength versus the AUD may have been ended by this latest jobs report – certainly yesterday’s lows near the huge AUDNZD trendline are the line in the sand for the bullish hopefuls.

SEK – the krona so far surviving the slightly weaker CPI print – a cut well back below 10.25 could yet regnite hopes for a follow through lower into 10.10-10.00

NOK – can EURNOK rally hold given Brexit situation and now that oil prices may consolidate? 

Upcoming Economic Calendar Highlights (all times GMT)

0930 – UK Oct. Retail Sales
1000 – Eurozone Sep. Trade Balance
1310 – ECB’s Praet to Speak
1330 – Canada Oct. Home Price Index
1330 – US Nov. Empire Manufacturing
1330 – US Nov. Philly Fed Survey
1330 – US Oct. Retail Sales
1330 – US Weekly Initial Jobless Claims
1400 – Canada Oct. Existing Home Sales
1500 – US Fed’s Quarles (Voter) to testify on banking supervision
1530 – US Weekly Natural Gas Inventories
1600 – US Weekly DoE Inventories

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

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

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.