The pound had a quite remarkable Tuesday, falling quite sharply against every major currency for 18 hours then regaining all its losses and more in the space of just 20-30 minutes. Let us explain… At its’ worst, around the end of the London trading session, GBP losses extended from just over 40 pips against the CAD to 50 versus the EUR, 90 against the USD, 130 against the AUD and a huge 170 pips against the NZD. The day had begun with the release at 7am London time of the Bank of England’s annual Financial Stability Report. It’s fair to say there were some very grumpy journalists: they had been in a locked room in Threadneedle Street from 5am to write up their stories ahead of an 0700 GMT embargo. The seven biggest UK banks passed a stress test that was as tough as if the UK crashed out of the European Union, the BoE said, with sterling slumping, interest rates rising to 4 per cent and a record housing market crash. It is undoubtedly good news that the UK financial system is seen as resilient but the almost exclusive focus on downside risks – the whole purpose of the FSR – nonetheless sowed the seeds of doubt amongst currency investors and pressured the pound throughout the London day. Then, at 6pm local time, a headline appeared on the Daily Telegraph website saying, “Exclusive: Britain and EU agree divorce bill”. The story said – and we quote in full - “British and EU negotiators have reached a deal over the so-called ‘Brexit bill’, opening the door to a potential breakthrough in the talks this December. Sources on both sides confirmed that an agreement-in-principle has now been reached over the EU’s demand for a €60bn financial settlement ahead of a crucial lunch meeting next Monday between Theresa May and Jean-Claude Juncker, the European Commission president. Two sources confirmed that the terms were agreed at a meeting in Brussels late last week after intense back-channel discussions led by Oliver Robbins, the UK’s chief Brexit negotiator. The Telegraph understands that the final figure, which is deliberately being left open to interpretation, will be between €45bn and €55bn, depending on how each side calculates the output from an agreed methodology”. If true – and it’s a big ‘if’ - then it at least means the Brexit talks can continue without the UK crashing out at a very early stage. GBP/USD surged from 1.3230 to 1.3375 with GBP/AUD and GBP/NZD both leaping more than 2 cents in less than half an hour. Whether this story is true, of course, remains to be seen. But it has certainly wreaked havoc in the foreign exchange market.