British markets became increasingly jittery and Sterling failed to make any gains on the US dollar as the Irish backstop proves to be an insurmountable obstacle in negotiations and Boris Johnson maintains that the only alternative to his current Brexit proposal is no-deal. David Frost, the UK’S Chief Brexit Negotiator, commented: “At some point, we were going to hit this rock on both sides on the customs issue.”
“If it’s the EU position that Northern Ireland has to be in the customs union, and that does appear to be the case, that’s not acceptable to us. Our position is that we need to come out and that seems to be where we are stuck.”
Michel Barnier, the EU’s Chief Brexit Negotiator added that a UK-EU deal was nevertheless “very difficult but possible”, calling for “calm, vigilant, respectful and constructive” talks ahead of the Brexit deadline.
The US dollar remained steady against the pound after Beijing announced their willingness to consider a “partial deal” on the condition that US President Donald Trump withhold any further tariffs on Chinese goods. Consequently, traders left the USD safe-haven in favour of riskier assets.
For USD traders, today’s Federal Open Market Committee minutes will step into the spotlight, with any signals that near-term monetary policy will remain unchanged likely to boost market confidence in the ‘greenback’.
Today will also see a speech by Jerome Powell, the Chairman of the Federal Reserve. However, with odds for a rate cut rising to 80%, any dovish comments could weigh on the USD/GBP exchange rate.
Looking ahead, Brexit will remain in the driving seat for the GBP/USD exchange rate, with any formal rejection of Boris Johnson’s ‘final’ proposal likely to see Sterling sink on Friday.
A further deterioration in UK-EU relations would likely extend these losses into next week.