As we move closer to the Brexit deadline UK Foreign Minister Dominic Raab has put his foot down saying “we will leave on 31st October come what may”, he stated that they have been as clear as possible in talks with the EU, leaving the ball in their court.
Having said that, European officials weren’t too happy after Boris Johnson likened himself to the Incredible Hulk throwing off the shackles of the EU over the weekend.
This dominant stance from Johnson came following the news that he would consider ways to get around the backbench rebel law mandating a Brexit extension in case of a no-deal by potentially seeking loopholes in the legislation or suspending parliament again. Today, Johnson will be going to Luxemborg to attempt to progress deal negotiations and the market will watch closely to see if anything new arises from the discussions.
The UK home secretary, Priti PateI, was positive in her outlook on reaching a deal when she spoke to the BBC over the weekend. She said the entire machinery of government is trying to push a deal over the line and that they are preparing and planning to leave on the 31st of October with a deal.
Even though it may not sound as convincing as Patel and Raab, an EU official has made it sound like progress is being made, “No, in fact people are a bit dismayed,” the EU source said, describing the mood after the latest talks. “I am not even going to call them negotiations – the last session on Friday did start touching on content – that’s actually quite a step forward … but we still should have been there a long time ago and [an end result] is still quite far away.”
Juncker echoed this note by stating “I hope we can get them, but time is running out” and followed this up with “would not wish your country such a fate” as it looks like the tensions on getting a decision on the 31st of October to be at an all-time high.
The main issue that seems to be a reoccurring theme over the past few months is the Irish backstop, finding ways to allow Northern Ireland to stay converged on some border issues with the Republic of Ireland, preventing frontier checks while not having a full customs border in the Irish Sea.
Johnson has so far been committed to getting rid of the backstop, and an option which was discussed was for a backstop just for Northern Island, but the government rejected this with Brexit Secretary Stephen Barclay stating that its vital for the UK to “leave as a whole”.
It’s a data light day in the UK, which mean politics is likely to drive currency movement. Cable was trading above 1.25 on Friday which is a key level on the pair. In the past two weeks alone we’ve seen GBP/USD trading as low as 1.1954 and as high as 1.2550, which shows how much risk there is in the market. With Dominic Raab suggesting the UK will leave come the 31st of October we could see moves lower, however there is sentiment in the market that a deal could still be done.
GBP/EUR has come off its recent highs, however it is still trading in the top 5% of its range for the past 6 weeks. This comes as the eurozone added a large amount of stimulus measures including cuts to interest rates paired with QE2. In the absence of data it is likely that the pairs movement will be led by political news.
EUR/USD is trading below key resistance level of 1.11 as the market continues to digest last weeks stimulus package from the Eurozone which many traders saw as less dovish than expected. Going forward US monetary policy is going to come under scrutiny as the market begins to price in rate cuts from the FED. A move above 1.11 could see 1.1250 back in sight.
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