FX Update: USD still quiet, but surely GBP set to heat up FX Update: USD still quiet, but surely GBP set to heat up FX Update: USD still quiet, but surely GBP set to heat up

FX Update: USD still quiet, but surely GBP set to heat up

Forex 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  It is difficult to craft any cogent narrative for the US dollar at the moment based on near-term and longer-term stimulus prospects and election outcomes, but surely we are set for a directional move in sterling soon of some magnitude as the October 15 Boris Johnson deadline for Brexit negotiations comes into view next week.

Trading focus:

Something to give in sterling pairs over next week?

Brexit brinksmanship is generally failing to trigger much GBP volatility. The EU side continues to say it won’t be pressured into a post-Brexit deal outline in time for Boris Johnson’s October 15 negotiation deadline. French president Macron making aggressive comments early this week on UK fishery access, but yesterday the EU negotiator Barnier asked member states to be flexible on fisheries (a friendly overture), while UK Prime Minister Boris Johnson renewed his claim that he is ready to pull out of talks if his original October 15 deadline for an agreement is not met – but with the market entirely ignoring this threat. GBP is treading water near the top of the recent trading range this morning after a choppy two weeks of trading, suggesting that the market thinks this is just noise and a deal will eventually be struck. I am sympathetic with that view bit we need a key positive headline on agreement in principle before that October 15 date that allows the “tunnel” or “submarine” to be entered to hammer out the final details.

It’s been a choppy two weeks of trading for sterling on a string of headlines that have prompted sharp intraday moves but no decisive outcome. It is clear that the 0.9000-25 area looks the key hurdle for a larger sterling move higher, together with that critical headline that a deal-in-principle has been struck within the next week.  The premium for EURGBP call options has eroded steadily for more than two weeks after peaking in mid-September. Clearly, complacency is rising for sterling-positive outcomes, but that may be justified. Still, traders should also therefore recognize that the impact of negative outcomes will be that much greater if, for example, we get a real stand-off and collapse in talks, even if temporary, after the mid-month deadline arrives with no agreement-in-principle.

Source: Saxo Group

The USD dollar and muddle of stimulus and post-election logic
Risk sentiment suggests the market is hopeful that a US stimulus deal will arrive before the election, but time is running awfully short and although Trump has made overtures on specific limited stimulus efforts, there is no sign of softening yet from the Democrats, as House leader Pelosi has dismissed Trump’s push on stimulus as an attempt to get checks with his name on them in the mail to every American just before the election.

The US dollar was nearer support late yesterday than it is as of this writing, and it is tough to dissect the narrative for the greenback here. On the one hand, signs are increasing that the Biden/Harris ticket is pulling away in the polls, with the latest polls in battleground states like Pennsylvania and Florida (both of which Trump won in 2016) showing widening margins in the Democrats’ favor. This is USD positive on the notion that the election could prove far smoother than recently feared and less contested than would be the case in a close election.

But longer term, the narrative is supposed to be that Biden is a negative for the US dollar on the risk of higher MMT-driven spending and higher taxes, and should equity markets celebrate a smooth election if there are longer term inflation and taxation concerns? The answer could be that the markets prefer to simply own stocks rather than bonds if inflation is set to pick up with the Fed pre-declaring that it is unwilling to hike rates. The more positive spin on the USD, meanwhile, is perhaps the hope that Biden will prove more fiscally responsible than the Trump administration by raising taxes to finance some portion of the spending. I am not convinced that serious flows have been generated on the above logic, as traders may be sitting on their hands and awaiting the equally important question of whether the Democrats can take back the Senate, the only way for Biden’s domestic agenda to see the light of day. We may be none the wiser on near-term USD direction until after Election Day.

A TRY-ing time for the lira
In spite of the positive mood across global markets and a solid bid under many EM currencies, the Turkish lira has been pounded for further sharp losses today, which have taken the USDTRY rate closer to the next round figure of 8.00. US senators from both parties are urging sanctions on Turkey’s purchase of a Russian anti-aircraft system, as Turkey is said to be readying a test of that system. Interestingly, the currency weakness has outpaced the credit market, as Turkish bonds don’t appear under local stress here.

The G-10 rundown

USD – head-scratching noted above on the USD and we could be in directional lock-down until after Election Day. The FOMC minutes drew little focus.

EUR – new partial lockdowns in parts of Europe, but sentiment is failing to crater here. Watching for the degree of disagreement among EU governing council members in today’s ECB meeting account.

JPY – the recent rise in yields and strong risk sentiment are a double whammy against the yen’s favour, and USDJPY jumped above local resistance, although the bigger picture chart implications are lacking in a hopelessly choppy chart – arguable mean-reversion is the name of the game (selling and assuming no upside break will sustain)

GBP – as noted above, sterling choppy with a consensus complacency afoot that a deal will be struck – the two-way risk is prominent, with the worst case a temporary collapse in talks if October 15 passes with no deal, even if brinksmanship can continue all the way up to December 31.

CHF – no need for safe havens with the current backdrop and paint is busily drying on the EURCHF chart. The EURCHF 1.0600-1.0900 range is the limbo zone for the franc and has been since June.

AUD – watching the 0.7200 area in AUDUSD for whether this triggers new buying interest on the technical implications (a reversal of the September sell-off). See our Eleanor Creagh’s breakdown of Australia’s latest budget.

CADUSDCAD slipping below the local 1.3250 pivot in today’s trade as oil has surged a bit again – the 1.3000 lows are the cycle key as well as the broader status of the USD, which has yet to break down.

NZD – RBNZ chief economist banging the dovish drum again in saying that it is better to err in the direction of doing too much rather than too little to bring further support. This jolted NZ rates a shade lower and AUDNZD back higher well above 1.0800, for now rejecting the bearish case that was building as that area faltered recently.

SEK – EURSEK needs a positive news in Europe and another surge in risk sentiment to punch back down through the 10.40 pivot area and suggest an end to upside risk.

NOK – the 10.75-89 level the key local pivot for EURNOK as we need a stronger boost to risk sentiment in Europe and a bigger surge in oil again if the pair is to work back lower.

Upcoming Economic Calendar Highlights (all times GMT)

  • 1100 – Mexico Sep. CPI
  • 1130 – ECB Meeting Minutes
  • 1215 – Canada Sep. Housing Starts
  • 1230 – Canada Bank of Canada’s Macklem to Speak
  • 1230 – US Weekly Initial Jobless Claims and Continuing Claims
  • 1315 – US Fed’s George (Non-voter) to Speak 
  • 1610 – US Fed’s Rosengren (Non-voter) to Speak

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 is not intended to and does not change or expand on this. 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/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)

Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

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

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.