Why is the Pound rallying so much?
|Sterling breaks through 1.2400
Euro takes out 1.1100
Nikkei 1.05% Dax 0.24%
UST 10Y 1.798%
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North America:
USD Retail Sales 8:30
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The pound hit fresh multi-month highs today rising through the 1.2400 barrier for the first time since July.
The move was more technical rather than fundamental in nature as the newsflow on the Brexit front remains confusing. Initially, UK papers reported last night that DUP was willing to compromise on the Irish backstop issue – a major concession that would make the current Brexit deal much more likely. However, DUP officials quickly denied the report reaffirming their stance that Northern Ireland should remain under the UK rather than EU economic rules.
Still, the market took the report as sterling positive on the assumption that some sort of deal will be done. It’s becoming clearer by the day that there will be no further concessions by the EU and for those in the UK who want to achieve Brexit the only way to do a deal is to accept the open border between the Republic of Ireland and Northern Ireland. Otherwise, Mr. Johnson’s reckless gambit of taking UK out of EU without a deal will most likely result in full rebellion and a 2nd referendum that could squash Brexit forever. Thus for those Brexiteers who want to above all else leave the regulatory framework of EU and create a low tax jurisdiction in UK, ditching DUP support – or perhaps somehow buying off their opposition to the deal is the easiest path to ensuring that Brexit gets done. Northern Ireland is more of a nuisance rather than a true strategic concern for the majority of Brexiteers who simply want England out of the EU.
Although there is strong opposition to Brexit within the UK – the biggest segment of the population appears to simply want to “get on with it” one way or the other. Therefore, Mr. Johnson’s Brexit allies may have made the hard calculus that Northern Ireland backstop should be sacrificed in order to get the Brexit deal done. Whether all of this Machiavellian maneuvering results in a deal remains to be seen, but for now the market believes that it will and GBPUSD is responding accordingly.
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