Daily Currency Update

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Johnson meets Merkel

GBP - British Pound

Sterling experienced spikes of volatility on Tuesday after German chancellor Angela Merkel said the EU would think about practical solutions to the backstop, which has consistently acted as a spanner in the works in the Brexit agreement. GBP/USD soared to highs of $1.2180, before the market repositioned itself and remained fairly muted around $1.2120. The move highlights the significance Brexit news has on GBP strength.
Johnson is set to meet with Ms Merkel later today in an attempt to convince her that an alternative solution to the Irish Backstop is the mutually beneficial agreement. The drop in sterling suggests the market expect the talks with Merkel to be fairly unconstructive and that the European Council isn’t considering Johnson’s proposal a serious offer. Without Tusk’s approval, today's talks are almost meaningless.

Key Movers

Guiseppe Conte announced his resignation as Italian prime minister on Tuesday but not before launching a scathing attack at opposition party leader Matteo Salvini. The decision came after Salvini triggered a vote of no confidence against Conte in the attempt to encourage a general election with hope of becoming PM. Italy’s economy is under extreme pressure and Conte stated that under ‘irresponsible’ Salvini these conditions are due to worsen.
October is expected to be extremely busy for Italian ministers as they gear up for Italian Budget (Oct 20th), a general election, Brexit (Oct 31st) and a mass change of leadership at the major EU institutions. Additionally, Budeesbank have issued a stern warning that Germany will enter a recession in the coming months. Expect uncertainty to heavily weigh on the Euro in the run up to these deadlines.
Across the pond, President Trump continues to wage war against Chinese trade. He declared it was vital to “take China on”, regardless of the potential short term economic damage. Many fear the thought of a global recession however Trump remains ever the optimist.
“We’re very far from a recession. In fact, if the Fed would do its job, I think we’d have a tremendous spurt of growth, a tremendous spurt.”
We’ll find out later how the Fed react to Trumps’ comments as they release the minutes from their last meeting at 19:00 today.

Expected Ranges

GBP/USD: 1.2075-1.2205 ▲

GBP/EUR: 1.0880-1.1010 ▲

GBP/AUD: 1.7800-1.8010 ▲

GBP/CAD: 1.6085-1.6230 ▲

GBP/NZD: 1.8870-1.9050 ▲