FX Update: Sterling and kiwi stumble as year winds down. FX Update: Sterling and kiwi stumble as year winds down. FX Update: Sterling and kiwi stumble as year winds down.

FX Update: Sterling and kiwi stumble as year winds down.

John Hardy

Head of FX Strategy

Summary:  After Q3 GDP data revision that reminds us that the UK is in the vanguard for economies lurching into recession, sterling has lurched into a new slide and is even threatening a break down versus the euro as EURGBP tests the highs since the Truss-Kwarteng mini-budget sterling wipeout. Elsewhere, a plunge in the kiwi is likely down to position squaring and rebalancing ahead of year end after a remarkable recent run.

Today's Special Edition Saxo Market Call podcast: Investors' Wish List for 2023

FX Trading focus: Sterling stumbles after weak GDP, Kiwi longs take profit. Last important US data point of the year up today: November PCE inflation.

The latest Q3 UK GDP revisions suggest the economy is weakening even more quickly than previously thought last quarter, as growth was revised down to -0.3% QoQ from -0.2% previously, and the Private Consumption figures was revised to -1.1% QoQ vs. -0.5% previously. The combination of a Bank of England that wants to soft-pedal further tightening and the promises of fiscal austerity from the Sunak-Hunt duo are a powerful negative for sterling as we look ahead into the New Year, which will likely bring relative UK economic weakness even if our thoughts that  recession fears for next year globally are over-baked for the first two and even three quarters. The FX fundamentals are entirely the opposite for the euro, as the ECB attempts a maximum hawkish stance as it recognizes the risks that the fiscal impulse can keep inflationary pressures elevated from here. The two-year yield spread is close to its highest since October of last year.

A weak GDP revision yesterday didn’t appear to be the proximate trigger for sterling’s latest lurch lower, but does remind us of the relative weakness of the UK outlook and the combination of a heel-dragging BoE (on further tightening) and austere fiscal picture could set up further declines in the weeks and months. Worth noting that the key EURGBP is pushing on the top side of the range established since the volatile days surrounding the Truss-Kwarteng mini-budget announcement. A hold above 0.8800 could lead to a test of the higher end of the range since the 2016 Brexit vote above 0.9200. A higher euro is straightforward if ECB maintains its hawkish stance as the EU fiscal impulse is far stronger from here. The wildcard for the euro side of the equation is the usual existential one of peripheral spreads and whether these stay orderly if yields resume their rise next year.

Source: Saxo Group

Elsewhere, the kiwi saw a sharp further run to the downside yesterday with no proximate identifiable trigger. AUDNZD traded all the way to 1.0719 before backing off to below 1.0650 at one point this morning. I suspect that this was an extension of the position squaring after a the remarkable run higher in the kiwi over the last two months, driven both by relative RBNZ hawkishness, but in particular by RBA (and arguably BoC), sparking heavy flows in AUDNZD just after the pair had traded almost to a decade high on hopes for a Chinese reopening boosting the outlook for Australia. The current reality on the ground in China is even worse than during the zero Covid tolerance days, but we know that the Arguably, recent record low consumer confidence readings in New Zealand suggest that the RBNZ will need to climb down from its hawkishness, at least in relative terms to its peers, going into next year. After an incredible slide in AUDNZD and rally in NZDCAD, I suspect we will see powerful mean reversion in the coming three months in those pairs.

It feels like USD traders have checked out for this year. Hard to tell if today’s US November PCE inflation data can generate any excitement on a soft print after the soft CPI print earlier this month generated a lot of fuss that quickly faded on the very same day. A more interesting development would be a slightly hot core set of PCE core readings than expected today (the month-on-month core reading expected at +0.2% and year-on-year expected to have decelerated sharply to 4.6% from 5.0% in October.

EURUSD has traded within a 100-pip range for more than a week and the 1-month implied volatility has recently plumbed lows (around 7.50%) not seen since the beginning of this year and would probably be lower still had not the Bank of Japan roiled markets this week. But the USD will have a hard time ignoring any further slide in risk sentiment to close out the year. And the beginning of the calendar year is nearly always interesting for new themes and often for demarcating key highs or lows for the year. Consider the following from the last six years of the EURUSD trading history:

  • 2022: High for the year in EURUSD posted in February, but that high was only a few pips above the 1.1483 high water mark of January. Low for year posted in September
  • 2021: High for the year was in January, on the third trading day of the year, low in late November
  • 2020: Exceptional pandemic year, low for year posted in March, high in December
  • 2019: High for quite year posted on January 10, low on October 1
  • 2018: High for year posted in February, but highest daily close not above intraday high in January. Low posted in November
  • 2017: Low for year in January, high in September (December high less than a figure from September high water mark)

Table: FX Board of G10 and CNH trend evolution and strength.
The JPY still sits with a strong positive reading, but has yet to “trend” after the huge one-day move this week – a few more days of lack of movement and questions marks would begin to flourish around its status. Elsewhere, note the NZD going full circle and now broadly outright weak after its status as king of the G10 as recently as less than two weeks ago. Gold posted a sharp reversal yesterday.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
Note that the weakness in risk sensitive currencies like SEK, NZD, AUD & GBP are seeing those edging into a downtrend versus the US dollar – worth watching for a deepening of these moves if risk assets continue south into the New Year. The EURCHF bears watching if the pair can take out 0.9900-0.9950 as currently the pair is caught in a very tight range. NZD is rolling over in many pairings.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights

  • 1330 – Canada Oct. GDP
  • 1330 – US Nov. PCE Inflation
  • 1330 – US Nov. Flash Durable Goods Orders
  • 1500 – US Dec. Final University of Michigan Confidence

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

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

    Read article
  • 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
  • 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
  • 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
  • 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 (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

40 Bank Street, 26th floor
E14 5DA
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992