Sterling surges on Brexit hopes, but risks remain Sterling surges on Brexit hopes, but risks remain Sterling surges on Brexit hopes, but risks remain

Sterling surges on Brexit hopes, but risks remain

John Hardy

Head of FX Strategy

Sterling remains rather bid after the EU Brexit negotiator Barnier said yesterday that a Brexit deal should be possible within an eight-week timeframe. The assumption is that the two negotiating sides will agree on some version of a Brexit deal along the lines of the Chequers proposal hammered out at a UK Conservative party leadership powwow over the summer. But as former foreign secretary William Hague points out in an op-ed in the Telegraph, there is a strong risk of a constitutional crisis if a sufficiently large Conservative party revolt of Brexit hardliners who believe a Chequers-like deal provides insufficient sovereignty for the UK requires a large number of Labour MP’s to vote in favour of the deal. 

In other words, risks remain, and sterling may have a hard time sustaining directional momentum for any length of time until the situation clears... or not.

It seems the euro has caught some of the positive contagion from the apparently higher probability for a Brexit breakthrough and traders shouldn’t focus too much on EURUSD and GBPUSD for a general picture of the USD direction at the moment, as USDJPY trades to new strong three-day highs this morning.

Emerging market currencies are generally firmer despite the grind higher in USDCNY and weakness in EM equity markets, seemingly led by Chinese equities. But the Russian ruble was in for a rough ride yesterday as USDRUB extended above 70.00 for a time after a top economic aide in the Russian government spoke out against rate hikes after last week saw Russian central bank governor Nabiullina indicating a bias for a rate hike. 

This is a classic no-no for EM investors smelling a rat in the political authorities meddling with the central bank’s independence. As well, the geopolitical risks linked to the possible coming conflict in Idlib and the potential additional US sanctions are weighing. Russian credit spreads on USD-denominated debt have not yet stretched to new highs for the cycle, it should be noted, unlike the case for South Africa foreign currency debt.


Promising developments in Brexit negotiations and a delayed reaction to the recent steep retreat in Italy’s yields has inspired a sharp move higher in GBPCHF and there is considerable further room to run to the upside if a Brexit deal materializes after the brutal 10% move lower from the top earlier this year. Tactically, however, sterling could be in for a rough ride on further headline risk indicating the progress toward a deal is in doubt. 
GBPCHF (source: Saxo Bank)
The G-10 rundown

USD – the US dollar lower versus the surging sterling and a firmer euro, but not broadly weak, as the recent boost in yields from the earnings data has kept a bid tone in USDJPY.

EUR – the euro getting a strong boost in the crosses from the continued push lower in Italian yields and sun poking through the Brexit clouds. 

JPY – the yen weaker across the board as the general rise in sovereign bond yields and bounce in US and European risk appetite help at the margin.

GBP – sterling surging a bit further this morning, but the move faded quickly and there is plenty of tactical two-way risk for now until we know whether a Chequers-esque deal would be approved by the UK parliament if one is agreed as soon as at next week’s May-EU summit. (A key test will be the September 30-October 2 Conservative Party conference).

CHF – EURCHF has now firmly rejected the attempt at the 1.1200 level after yesterday’s developments, which suggest that the euro is also sensitive to the fate of Brexit. 

AUD – the Aussie keeping a closer eye on China than risk appetite at the moment, it seems, as it has failed to find more upside on a very risk-friendly market this morning. Australia employment data up on Thursday.

CAD – USDCAD trying to find a new support level after the recent USD-strength inspired surge – first interesting level perhaps the 1.3100 area.

NZD – NZDUSD is in a fairly well defined descending channel – see little to like about the kiwi with dark clouds over China and a very dovish RBNZ chief Orr on watch.

SEK – EURSEK reluctant to follow up lower, but we prefer to look at the signal from Swedish yields, which are arguing for further strength.

NOK – NOK firming in fits and starts. Short Norwegian rates are climbing slowly back higher and the “mainland GDP” saw +0.2% quarter-on-quarter growth. A Regions Survey is up this morning that could offer further input, but we are constructive on the potential for additional NOK upside within the trading range in EURNOK.


The Saxo 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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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 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 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 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 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 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 (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo 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 Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning 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. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

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

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 are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

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.