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Pound led G-10 forex gains in September as haven currencies fell

The pound sterling was the strongest G-10 currency in September as the U.K. appeared to step back from the precipice of a no-deal Brexit, while a broad risk-on sentiment in global markets saw traditional safe-haven currencies weaken.

Equities rebounded as money shifted back into risk assets with the S&P 500 approaching July's record high in mid-September before fading. The pound's 1.1% followed a flat August and a 4.2% slump in July that was the biggest since October 2016.

Other currencies that tend to perform well in a risk-on environment also gained, with the Australian dollar climbing 0.58%, the Canadian dollar adding 0.57% and the Norwegian krone rising 0.50%.

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Sentiment on the outcome of Brexit shifted somewhat as the U.K. Parliament reasserted control over the process through the passing of the Benn Act on Sept. 6, forcing Prime Minister Boris Johnson to seek an extension to the Oct. 31 Brexit deadline. The pound rallied from below $1.21 on Sept. 3 to $1.25 on Sept. 14, but had given back much of the gain by the end of the month to end September at $1.23.

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"A lot of our indicators have been flashing risk-on signals for much of August," said Kamal Sharma, director of G-10 foreign exchange strategy at Bank of America Merrill Lynch.

"The bulk of the move was driven by the no-deal risk premium being taken out of the market, but there was also a positive change in the [macro] environment as data was on the better side of expectations."

The outlook for sterling remains tied to an unpredictable Brexit outcome, with little apparent progress being made toward a deal, but a U.K. Parliament determined to prevent a no-deal.

"Unless and until there are solid signs of an agreement I would be reluctant to anticipate a durable bounce above $1.255-$1.26," said Jeremy Stretch, head of G-10 foreign exchange strategy at CIBC Capital Markets.

European easing

The Japanese yen, which traditionally rises in response to bad economic or geopolitical news, shed 1.78% in September, the most since February.

The euro slid 0.46% as economic data worsened and the ECB cut interest rates further into negative territory and announced a resumption of bond purchases.

"Europe is in the eye of the storm of two big geopolitical stories here," Sharma said, noting the impact of Brexit and the U.S.-China trade war. "The ECB is reaching the bounds of policy measures that can help the economy and the reliance has to be fiscal, German fiscal, stimulus. Until we see signs of that it's hard to see any signs of a major recovery."