GBP - British Pound
Wednesday saw a fairly muted day for sterling after the British currency retraced after investors began to doubt the legitimacy of hints by German Chancellor Angela Merkel that there may be room for negation over the Irish backstop issue. Johnson and Merkel met yesterday ahead of the G7 meeting. Merkel challenged Johnson and his ministers to identify an alternative to the Irish border backstop within 30 days.
Macron ruled out renegotiation of the UK’s withdrawal agreement. Many suggest Johnson is showing that he is proactively renegotiating with the EU so that he can play the blame game when the UK leave with a ‘No Deal’ on October 31st. Macron now believes that a ‘No Deal’ is the most likely Brexit outcome.
The next 48 hours will be extremely important for the Euro in particular. EUR/USD has been trading at a 60 point range since the start of the week. Between European services and Manufacturing PMIs, talk of a German technical economic recession and Italian politics in disarray, the Euro is not an attractive purchase for investors at the moment. The only thing keeping EUR/USD above 2 year lows is the expectation that the Fed will cut rates next month.
In USD news, investors are impatiently waiting for US policymakers to announce their guidance for the future. The FOMC minutes came out more dovish than expected however a rate cut is still predicted next month. It is thought that the rate cut is merely a mid-cycle adjustment and not the start of a long easing cycle. The Fed have come under extreme criticism from the US president in recent weeks, as Trump demands large scale cuts. Eyes turn to the Jackson Hole Symposium and the ECB Monetary Policy Meeting Accounts.