FX Update: Sterling rises on fiscal stimulus hopes FX Update: Sterling rises on fiscal stimulus hopes FX Update: Sterling rises on fiscal stimulus hopes

FX Update: Sterling rises on fiscal stimulus hopes

Forex 4 minutes to read
John Hardy

Head of FX Strategy

Summary:  Sterling strength is one of the few themes going at the moment within FX outside off the recent pronounced move lower in the euro. Preliminary PMI surveys out later this week from Japan and the Euro Zone area some of the first data points that will show impact of the Covid-19 virus on activity out of China.

Trading interest

  • Short EURGBP with stops above 0.8400
  • Looking to pick up USDCAD longs ahead of 1.3200 with stop below 1.3100 for 1.3500+

Markets are starting the week on a positive footing as China’s equity market posted its largest gain in over a week and has now almost entirely erased the sell-off from the Covid-19 virus outbreak despite the profound shutdowns across the country. The FX impact across Asia looks rather different as USDSGD remains close to multi-year highs after a steep run-up in late January and Singapore’s MAS indicating a willingness to allow SGD to devalue if necessary. The Thai baht likewise remains near the bottom of the recent move lower on the hefty impact on its economy from tourist arrivals drying up. We don’t share the markets relative complacency but have no edge in knowing how the Covid-19 situation and fallout will shape up from here.

Sterling closed last week on a high note after the Thursday news that Johnson’s cabinet reshuffle has now resulted in Chancellor Javid’s resignation after Johnson asked Javid to fire all of his advisers, which many have taken as an indication that Boris Johnson’s team is gearing up for  a more significant fiscal stimulus package set to be announced in March. The prospects for an economic rebound on fiscal policy doing the heavy lifting would allow the Bank of England to maintain the policy rate unchanged for now. EURGBP closed at its lowest level since the December election and since just after the Brexit vote back in 2016.

Today, US markets are closed for President’s Day

Cable has stabilized again after the recent attempt through the important 1.2900 area about a week ago. The recover late last week was driven by Boris Johnson’s cabinet reshuffle and specifically by Chancellor Javid’s resignation, which many are taking as a sign that Johnson’s plans for fiscal stimulus are turning more aggressive. The sterling surge looks for real versus the euro, but to really impress, we’d like to see sterling pulling higher here – and the next major hurdle on that account is the 1.3200-50 area.

Source: Saxo Group

The G-10 rundown

USD – the broad USD strength has faded slightly as risk appetite has returned to start the week and traders are snapping up beaten EM currencies outside of Asia.

EUR – watching whether the break below 1.0900 in EURUSD holds here and looking on how quickly the EU can cobble together a fiscal impulse of size – plenty of upside potential there if it ever can. In the meantime, we have the additional risk for the euro if Trump moves against EU auto important with tariff announcements.

JPY – a very ugly GDP print overnight (-6.3% annualized versus -3.8% expected), but the impact was seen largely down to the sales tax hike in October pulling demand forward to the prior quarter and on the impact from a large typhoon. Still – this was far weaker than expected and underlines focus on bringing forward stimulus (also helping EURJPY lower recently?). More interesting to see how the late Q1 data shapes up on possible Covid-19 virus impact, starting with flash Japanese Feb. PMI’s up on Friday this week.

GBP – as discussed above, sterling riding high on hopes for generous fiscal stimulus measures – have to be wary of the risk of unfriendly trade deal negotiations with the EU, but that issue may only become more pressing in second half of this year.

CHF – EURCHF challenging below interesting levels (early 2017 lows) and the SNB feeling less urgency to act here as the Euro is very weak and the US has put Switzerland back on the currency manipulator watchlist – room for the pair to run to at least 1.0500?

AUD – not looking for much from RBA minutes. Aussie traders caught in an awkward area near the post-GFC lows in AUDUSD with uncertainty over how the region’s economy shapes up from here on the ongoing Covid-19 virus impact.

CAD – as oil prices have bounced back modestly, so has CAD, with room to perhaps 1.3200 in USDCAD and even lower before the bullish outlook begins to struggle.

NZD – figuring that AUD shows higher beta than NZD to China outlook – and AUDNZD looks long-term undervalued, but missing a signal.

SEK – to get EURSEK below 10.40 from here, we may need a stronger EU outlook and fiscal stimulus from both the EU and Sweden.

NOK – the oil comeback powering EURNOK lower, but 10.00 looms as an important level and the Norges Bank rate outlook will tilt more steeply for cuts if the domestic outlook deteriorates further.

Upcoming Economic Calendar Highlights (all times GMT)

  • US Markets Closed for President’s Day
  • 1400 – ECB’s Lane to Speak
  • 2000 – New Zealand REINZ House Sales
  • 0030 – Australia RBA Minutes


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