The pound rallied yesterday, hitting 3-week highs against the US dollar and euro following comments from German Chancellor Angela Merkel and what appeared to be a successful meeting between UK Prime Minister Boris Johnson and French President Emmanuel Macron.
Merkel backtracked on previous comments that suggested the UK had 30 days to find a suitable solution to the Irish backstop, now saying the UK would have until October 31st. The backstop was one of the main reasons previous Prime Minister Theresa May failed to gain parliamentary approval for her withdrawal agreement.
Boris Johnson visited Emmanuelle Macron at the Élysée Palace yesterday in Paris. The meeting was not expected to go as well as Wednesday’s meeting with Angela Merkel since Macron has taken a harder stance on Brexit. However, comments afterwards show the talks were constructive. Whilst Macron said there is not enough time to rewrite the whole Brexit divorce deal, he left the door open for a suitable replacement to the Irish backstop, provided it doesn’t affect the integrity of the European Union or the stability of the island of Ireland.
GBPUSD opened at 1.2111 and rose for the entire day, rising nearly 1.2% to hit a high of 1.2256, making it the pound’s best day against the dollar in months.
GBPEUR opened at 1.0930 and like GPBUSD, rose nearly 1.2% over the course of the day to reach a high of 1.1061.
The US dollar fell marginally on Thursday ahead of Federal Reserve Chairman Jerome Powell’s speak at the Jackson Hole economic symposium later today. Investors await Powell’s statement which could reveal plans of a stimulus measure to reduce the threat of recession of reaffirm the central bank’s easing stance which would be negative for the US dollar.
However, after two Fed officials have said they see no need for any sort of easing at the moment, Powell may take a less dovish stance and push back against expectations of aggressive interest rate cuts, which would prove positive for the dollar.
The dollar index fell around 0.2% against a basket of currencies in the afternoon to 98.148. EURUSD opened at 1.1080, spiked to 1.1107 before closing slightly up on the day at 1.1086.