Uncertainty Around the Irish Backstop Dominates Brexit Discussions

Jean Claude Juncker is in the news after he made it crystal clear that he did not have an ‘emotional relation’ to the Irish backstop. These aren’t words you’d expect to come out of the European Commission President’s mouth when describing the future of the EU.

However, his meaning behind it was evident, if there is an alternative to the Irish backstop by the 31st October, a deal can be done in time. This positive sentiment has seen the pound surge in value. Not everyone in Europe took the optimistic route; ECB policy maker Oli Rehn said that it would be Britain who would come out worse if they fell out of the EU with no deal, with the euro area only absorbing 10-30% of the full effect.

One interesting point to note is that Jean Claude Juncker’s 5 year term as president of the commission ends on the 31st October - the exact same day as the Brexit deadline. The likeliness of these two dates coinciding is slim - but with Jean Claude Juncker wanting to end his reign with a bang, this might be what gets a deal over the line.

A verdict over whether the UK government’s decision to prorogue parliament was lawful is expected early next week. Whether anything will come from this hearing is uncertain as Lord Kean, who is representing the government, describes it as ‘forbidden territory.’  

The government's lawyer, Lord Kerr, suggested that if the prorogation is found to be unlawful, then it does not actually compel the Prime Minister to take any particular action. Lord Reed noted that the government's case was that Parliament would still stand prorogued if the judges find the suspension unlawful.

But Lord Pannick said it’s "implicit" that the prorogation would need to be reversed. The government's case is that if the justices declare that Boris Johnson's advice to the Queen on the prorogation of Parliament was unlawful, it could simply restore the prorogation on a sounder legal basis.

GBP/EUR

We’ve seen GBP/EUR move higher through the significant resistance level of 1.13. We’re currently trading above the 1.1350 level as the market prices in a 50/50 chance a deal with the EU could be reached. With no more substantial data coming out today it will be Brexit announcements driving the markets.

GBP/USD

GBP/USD has broken through 1.25 and is currently sitting around 1.2550 which presents opportunities for dollar buyers. The next level on the upside to watch out for is 1.2750, but any negative Brexit news could easily see it drop below 1.25 again.

EUR/USD

There’s no clear direction between the currency pair as we find EUR/USD trading around 1.1050. If sterling continues to strengthen against both the euro and the dollar, we would expect to see little movement in EUR/USD.

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