The Pound has rallied overnight following a very positive meeting between Boris Johnson and Ireland’s leader (Varadkar) where it was said they can see “a pathway to a possible Brexit deal”.
These words led to a 2.5 cent jump in the GBP/USD and around a 2-cent move higher in the GBP/EUR. There are various media reports suggesting what the new deal could look like but some are saying that the UK have made some major concessions. While Varadkar spoke to the press after the meeting, Boris remained tight-lipped, which could be a sign that he wants to break things gently to the more fervent Brexiteers in his party (and the supporting DUP).
Some of the reports suggest a pared down free trade agreement to replace parts of the Withdrawal Agreement. A new branding of the Irish backstop might help Boris as this was a key sticking point of the previous failed attempts at a deal. Other reports suggest that Northern Ireland would leave the customs union with the rest of the UK but continue to follow the same rules. This idea is a bit vague and it’s unlikely to go down well with the DUP who do not want Northern Ireland to be treated differently to the rest of the UK.
We’re likely to find out more details later in the day when the chief negotiators (Barnier and Barclay) meet again to thrash things out. Barnier has been heavily accused by the UK of hindering the progress in any talks. If he comes on board with the new proposals, together with the Irish’s support, then it certainly does appear to have some legs. The market now feel an exit deal is more likely to be achieved before Boris’s 31st Oct deadline, but there’s still a long way to go. An extension still seems likely, but Boris might be able to get acceptance for this if the new plans are in full motion.
If we get initial approval from Brussels later on today, then we would expect some further gains to the Pound and vice-versa if they’re shot down by Barnier. If there is a positive response, the market will then focus on the UK’s side of things and whether there would be enough support in Parliament to get this agreed once the details are known. A special session of the House of Commons has already been organised for Saturday 19th Oct which is straight after the key EU Summit on 17-18th Oct.
Things continue to be very fluid and will remain very volatile. We will update you on any major developments.