Above: Emmanuel Macron, Image © European Union.
– Sterling jumps 1% vs. Euro
– Macron offers Johnson further hope that a deal can be done
– Analysts remain sceptical Sterling’s gains will be enduring
Pound Sterling rallied against the Euro, U.S. Dollar and other major currencies on Thursday after French President Emmanuel Macron said the Withdrawal Agreement can be amended to allow the UK to leave the European Union with a deal.
Gains accelerated in the London afternoon session following comments by German Chancellor Angela Merkel in the Hague in which she suggested stated a solution to the Irish border issue could be found before the October 31 Brexit deadline.
“We can find a solution to the backstop by October 31…we can work on finding a regime that keeps the Good Friday Agreement and also ensures the integrity of the single market,” said Merkel.
Macron’s suggestion that the backstop can be tweaked is however arguably the more important communication of the day as it would appear to be the first time an EU leader has deviated from the long-held line that the Withdrawal Agreement cannot be reopened.
“It is just what Michel Barnier has negotiated can be amended while complying with the integrity of the single market and the two goals I mentioned, then we can find a solution,” Macron said during a visit by UK Prime Minister Boris Johnson to Paris.
The suggestion from Macron is Barnier can find a solution “without totally reshuffling the Withdrawal Agreement”.
“We should all together be able to find something smart within 30 days on both sides if there is goodwill on both sides and I believe there is,” said Macron.
Macron also repeated the suggestion made by Germany’s Angela Merkel the day prior that a solution to the Irish border must be found in 30 days, giving rise to fresh hopes that a Brexit deal can yet be clinched by the UK and EU. “We will not find a new Withdrawal Agreement within 30 days that will be very different from the existing one.”
Following the comments, the Pound-to-Euro exchange rate was quoted at 1.1038, a new three-week high; this week’s low is down at 1.0888. The Pound-to-Dollar exchange rate is quoted at 1.2240, this week’s low is at 1.2065.
“Sterling continued to find buyers on the dip. Traders appeared to be comforted by the positive tone in today’s joint press conference from both UK PM Johnson and French President Macron regarding Brexit,” says Erik Bregar, Director, Head of FX Strategy at Exchange Bank of Canada.
Above: Sterling-Euro jumps on Macron comments
The comments from Macron will add to the view that there is in fact a willingness by the EU to talk to the UK on the matter of the Brexit deal that could ultimately prevent a ‘no deal’ Brexit occurring on October 31.
“These Johnson/Merkel and Johnson/Macron meetings are only tiny steps towards a breaking the deadlock, but they at least show willingness from both sides to avoid the UK crashing out,” says Mathias Van der Jeugt, an analyst with KBC Markets in Brussels.
Above: Sterling has recorded gains on all the major currencies over the course of the day
Macron added that the coming months “must be useful” in progressing towards a Brexit deal, but the Withdrawal Agreement can’t be changed. “We will not find a new Withdrawal Agreement”.
Macron said a ‘no deal’ is not the EU’s choice, but “it’s our duty to be ready for it.”
“With these headlines, GBPUSD is now exploding higher past chart resistance in the 1.2170s. If this breakout higher holds into the NY close today, we think we could see some further short covering from the fund community which could take the market all the way up to the mid-1.23s,” says Bregar.
Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.
* Advertisement
Analyst Remains Sceptical on Further Sterling Strength
Johnson appears to be confident he is finding some impetus on the matter and said he believes a deal can still be done, and he is encouraged by the talks held with Germany’s Angela Merkel the day before.
He told reporters in Paris he reiterates he wants Brexit done, and done sensibly.
On the matter of the Irish border Johnson repeated the UK’s stance that “under no circumstances” will the UK government institute checks or controls at the border.
He adds that he believes there is a solution that will both protect the integrity of the single market – a key demand of the EU in negotiations – while ensuring there is no ‘hard’ border on the island of Ireland.
Despite the apparent relief Sterling is seeing, we retain the view that any rallies will be slim and trader nerves towards the currency will remain elevated.
“The obvious difficulties in inventing an alternative to the Irish backstop combined with the fact that the PM has previously indicated that he is prepared to go through with a ‘no deal’ Brexit does not, in our view, offer much solace for GBP investors,” says Jane Foley, a foreign exchange analyst with Rabobank.
We therefore suggest those looking to buy foreign currency remember that the downside risks remain substantial and at this juncture sitting and waiting for ever-higher exchange rates could result in disappointment.
David Cheetham, Chief Market Analyst at XTB UK says, “GBP isprimed to rip, but I don’t think this is anywhere near concrete enough to be the catalyst for a sustained move just yet.”
* Advertisement