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Rabobank analysts suggest that GBP is not the only currency to have benefited from Brexit relief as the EUR and CEE currencies such as the PLN have also found support on rising hopes that a no deal Brexit may be averted in the coming weeks.

Key Quotes

“The EUR and CEE currencies have also found support from a perceived easing in trade tensions between the US and China. EM currencies are sensitive to broad levels of risk appetite while the EUR is likely to be sensitive to the Chinese growth outlook – given Germany’s strong trading relationship with the world’s second largest economy. Even if any trade agreement between the US and China falls short of a comprehensive climb down, expectations that a phase 1 deal could be signed in November should bring reprieve to risk appetite. This is likely to bring further impetus to the moves that have already started to disrupt recent trends in the G10 FX market.”    

“Measured both on a 12 month and a 6 month view, the safe haven JPY has been the best performing G10 currency. Measured on a 1 month view, however, the JPY is at the bottom of the table. The relative weakness of the JPY in this period may not be entirely a function of improving risk appetite. There has been a round of speculation in recent weeks that Japan’s Government pension Investment Fund is re-allocating into foreign assets to take advantage of better yields.”

“That said, aside from the GBP, the G10 currencies that have performed well over the past month are the NZD, AUD. These currencies have become particularly sensitive to Chinese growth concerns, with the AUD frequently traded as a proxy to Chinese assets. If optimism about a trade deal between the US and China rises further it is likely that the AUD and the NZD will be among the best performer and the JPY the worst. A caveat is that any reprieve on a phase 1 trade deal could be short-lived.”

“While we expect US/Sino tensions to return, improving risk appetite could continue to make its present felt at least on a 1 month view.”