Sterling Rallies on Merkel’s Optimism Regarding Irish Backstop

The British pound today exploded higher after the German Chancellor Angela Merkel expressed optimism that the Irish backstop issue could be resolved by October 31st. The GBP/USD currency pair rallied to new monthly highs above the crucial 2.2250 level as traders bought the Sterling in anticipation that her remarks would help prevent a no-deal Brexit scenario.
The GBP/USD currency pair today rallied from a low of 1.2108 in the early London session to a new monthly high of 1.2273 following Angela Merkel’s comments.
The pound traded with a slight bearish bias today before the London open but rallied higher as the London session got underway. Bullish traders ignored tough statements from French President Emmanuel Macron regarding the EU’s stand on Brexit saying that the block would not reopen Brexit negotiations. Macron’s comments could not derail the pair’s rally as traders remained hopeful that the EU would give the UK a deal in order to avoid a messy exit. Boris Johnson had concluded his meeting with Macron at the time of writing even as the pair held on to its gains despite Macron’s tough words.
The currency pair’s rally coincided with a significant dip in the US Dollar Index, which fell to a low of 98.09 despite the release of upbeat US initial jobless claims data by the Department of Labor. The weak Markit US manufacturing PMI may have boosted the pair.
The currency pair’s future performance is likely to be affected by Brexit headlines and tomorrow’s Jackson Hole speeches.
The GBP/USD currency pair was trading at 1.2253 as at 17:01 GMT having rallied from a low of 1.2108. The GBP/JPY currency pair was trading at 130.41 having risen from a low of 128.77.

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