FX markets had been relatively quiet in the wake of the release of the Fed’s meeting minutes yesterday evening, with markets pricing in a 90% probability of the Fed cutting rates by another 25bp at its September meeting.
But sterling came to life this afternoon after German Chancellor Merkel said that Prime Minister Johnson’s government has until 31 October to find an alternative solution to the Irish backstop. The GBP/USD cross, which had bee languishing near 1.21, shot up to as high as 1.226 and GBP/EUR is also up about 1%.
This is seemingly a more conciliatory approach by the German leader, implying that if the UK and EU can both agree on an alternative to the backstop the EU may be willing to further delay Article 50 negotiations to allow the British parliament to vote on a “new” Brexit deal. However, time is running out and there are still many ifs and buts, namely whether after three years of trying the British government can find an alternative to the backstop acceptable to EU leaders, and in particular Merkel and French President Macron.
