News & Resources

Market Analysis

Latest Insights
Press Releases
Latest Insights

UK Weekly
Market Analysis
Sterling Lifted by Soft Brexit Tease

by David Starkey | December 2, 2016

– Sterling/Euro higher for 5th consecutive week

– Sterling up 5% from flash crash lows

– Choppy seas for EUR with Italian constitution vote & ECB


Sterling edged higher this week following comments from the UK’s lead Brexit negotiator David Davis that appeared to soften the government’s previously firm stance on a so-called “Hard Brexit.” During parliamentary proceedings, Davis suggested that the UK could pay for access to the single market while at the same time taking control back over UK immigration. Sterling was buoyed by the idea of a more collaborative Brexit stance. GPBEUR, which is now in the vicinity of post-Brexit highs, is on track for its fifth  consecutive week of gains, having rallied up to its highest level since early September. Sterling’s gains were not limited to the Euro; in fact the British Pound is up over 1% this week against the American and Australian Dollars, as well as the Japanese Yen.

This week’s activity could present an opportunity for sterling sellers. Since the October Flash Crash, sterling has rebounded strongly, up over 5% against most G10 currencies. This softens the blow of pre- and post-referendum losses. As of yet, there has been no comment from the EU side of the negotiating table about fee-based access to the single market. In the past, EU negotiators have been cool to the idea of “picking and choosing” which of the  four core freedoms (movement of capital, services, goods, and people) a member state may adopt. The position has quite clearly been all or none. Recent sterling gains could be in jeopardy if the EU maintains its hard-line position and talks steer back towards a Hard Brexit.

Looking to the week ahead, the first event to take note of is the Italian constitutional referendum over the weekend. The objective of the referendum is to assess the desire to reform the upper house of parliament. Supporters of the motion argue that this will streamline the bureaucratic process, thereby helping get much-needed banking and economic reforms written into law. Detractors are concerned that it would concentrate too much power in one place and perhaps also create a safe haven for corrupt officials. The reason that this matters to currency markets is that current Prime Minister Mario Renzi has suggested that he would consider resigning if the referendum were to be voted down. This in turn could trigger a general election and potentially hand more power to the anti-establishment Five Star Movement; which has advocated Italy leaving the EU. As such, a “No” vote this weekend could see euro open next week on softer footing.

Next Thursday the ECB will roll out a monetary policy update. ECB chief Mario Draghi has insisted, despite growing criticism, that his ultra-loose monetary policy is both necessary and working. He has argued that the cost of low-interest rates to savers is offset by the stimulus to business activity and spending. In fact, given recent comments from Draghi, there is growing speculation that the existing stimulus program might be expanded. Specifically, currency markets will be looking for an official extension to QE past the March 2017 soft end date, something Draghi has previously hinted at. More QE is likely to weigh on the common currency.

To receive our UK market analysis direct to your inbox subscribe!

“Cambridge Global Payments” is a trade name, which in this document refers specifically to one or more of these legal entities: Cambridge Mercantile Corp., Cambridge Mercantile Corp. (U.S.A.), Cambridge Mercantile Corp. (Nevada), Cambridge Mercantile (Australia) Pty. Ltd.

Cambridge Global Payments (“Cambridge”) provides this document as general market information subject to: Cambridge’s copyright, and all contract terms in place, if any, between you and the Cambridge entity you have contracted with. This document is based on sources Cambridge considers reliable, but without independent verification. Cambridge makes no guarantee of its accuracy or completeness. Cambridge is not responsible for any errors in or related to the document, or for damages arising out of any person’s reliance upon this information. All charts or graphs are from publicly available sources or proprietary data. The information in this document is subject to sudden change without notice.

Cambridge may sell to you and/or buy from you foreign exchange instruments (including spot and/or derivative transactions; both kinds are here called “FXI”s) covered by Cambridge on a principal basis.

This document is NOT: 1) Advice of any kind, or 2) Approved or reviewed by any regulatory authority, or 3) An offer to sell or a solicitation of an offer to buy any FXIs, or to participate in any trading strategy.

Before acting on this document, you must consider the appropriateness of the information, based on your objectives, needs and finances. For advice, you must contact someone independent of Cambridge.

Certain FXIs mentioned in this document may be ineligible for sale in some locations, and/or unsuitable for you. Contact your Cambridge representative for further information regarding product availability/suitability before you enter into any FXI contract.

FXIs are volatile and may cause losses. Past performance of a FXI product cannot be relied on to determine future performance.

This document is intended only for persons in Canada, the US, and Australia. This document is not intended for persons in the UK or elsewhere in the EEA. In Australia, this publication has been distributed by Cambridge Mercantile (Australia) Pty. Ltd. (ABN 85 126 642 448, AFSL 351278); for the general information of its customers (as defined in the Corporations Act 2001). This entity makes no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law.

Fees may be earned by Cambridge (and its agents) in respect of any business transacted with Cambridge.

The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact the applicable Cambridge if you wish to use Cambridge services to enter a transaction involving any instrument mentioned in this document.

© Copyright 2018, Cambridge Mercantile Corp., ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of Cambridge Mercantile Corp. See for contact details.