John J Hardy
The UK’s exit from the European Union is causing volatility in GBP, says Saxo Bank’s head of FX strategy John Hardy, and may be the start of a squeeze on sterling pairs.
Article / 12 October 2016 at 7:01 GMT

Morning Markets: Sterling rebounds as stocks dive

Deputy Editor /




  • Eurozone: Industrial Production (0900 GMT) 
  • US: Job Openings & Labor Turnover Survey (1400 GMT) 

As European markets open for the mid-week session participants will be monitoring the British pound and wondering about the sustainability of the recovery it achieved overnight. Wall Street (apparently still edgy about the longer-term economic implications of Brexit) sent the currency below 1.21 against the dollar yesterday. However, the gloom dissipated a tad during Asian hours, sending GBPUSD as high as 1.23 before it settled back slightly weaker.

A pledge by UK prime minister Theresa May to facilitate a "full and transparent" parliamentary debate prior to the triggering of the contentious Article 50 that sets a 2-year deadline on the EU-UK divorce helps explain sterling's recovery. However, given the many economic uncertainties that the Brexit process contains, as well as Europe's determination not to yield on freedom of movement and trade privileges, the pounds rebound may prove a mere hiccup in its downwards spiral.

Meanwhile, the dollar is taking succor from Hilary Clinton's increasing chances of taking the US presidency amid market conviction that her rival Donald Trump's increasingly belligerent campaign will do nothing to win over more voters.

Today's economic calendar is on the thin side but watch those Eurozone industrial production figures at 0900 GMT for signs of industrial recovery across the continent.

Market signals

Asian session

  • Australia's consumer sentiment came in at 1.1%, up from last month's 0.3%
  • Demand for Australia's first-ever 30-year bond pushes past the $A13bn mark
  • Japan's core machinery orders fell 2.2% in August, better than the minus 4.4% expected
  • Asian markets fell across the board following the slump in US stocks
  • The ASX200 reversed a gloomy start to close only marginally lower
  • CSL announced a $A500m share buy-back

Forex ahead

  • Early, sterling fell as much as 2.2% to $1.2106 against the dollar
  • GBP then climbed as much as 1.4% and was up against all major peers
  • USD edged down 0.1% to 103.40 yen
  • The Aussie dropped 0.9% to $0.7539 before inching up

From the Floor

Brexit pendulum. “We could see a sudden sentiment shift and any easing of concerns over a ‘hard’ Brexit could see a sharp squeeze up in GBPUSD,” says Hardy

Unreal estate. “Tokyo real estate could fall by as much as 20-30% on the back of the Bank of Japan targeting the yield curve,” says Garnry

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

Today’s August report for the Eurozone's industrial activity is expected to provide fresh data for thinking positively, writes James Picerno.

Hold your horses
The horse may have bolted on bonds by the time the big three central banks issue their upcoming updated inflation forecasts, explains Max McKegg.

Stock selloff
The US dollar continued to rally overnight following the break higher of US yields, which triggered a selloff in stocks, writes the Saxo APAC Sales Trading team.

Drilling down
The ASX200 opened weaker this morning following overseas leads, with miners and energy stocks leading the charge, says Saxo's Sydney trading team.


 Remember this: Things can move fast in London, sterling included. Pic: iStock

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