Pound jumps back near $1.31 on "thumbs up"

Summary:

• Pound gains on hints of Brexit breakthrough

• Brexit secretary Raab gives “thumbs up” message after Cabinet meeting

• GBPUSD back near 1.31 and looking more constructive

There’s been a couple of short, sharp moves in the pound today with the currency clearly highly sensitive to the latest twists and turns in the Brexit saga. First off there was a swoon lower after N Ireland DUP lawmaker Donaldson took to social media to proclaim that it “looks like we’re heading for a no deal Brexit. Just over an hour afterwards though, these losses were reclaimed as the GBPUSD rate jumped to its highest level in over a fortnight with pair reacting positively to another twist.

The pound has seesawed today on two Brexit rumours, with a swift drop lower being recovered as the market react positively to a “thumbs up” from Raab. Source: xStation
 

BBC political editor Laura Kuenssberg tweeted that the Brexit Secretary Dominic Raab has said “thumbs up” on the way out of a Cabinet meeting after UK PM Theresa May had gathered her closest confidants to discuss the latest on Brexit. There has since been another message on Twitter from Tim Ross, of Bloomberg, who has said that a “November deal summit looking less likely as May’s cabinet can’t decide whether to back down on the backstop.” This latest remark has yet to cause any tangible market reaction and the pound remains near its highest level of the day.

The official update from UK PM May’s spokesman is shown below in selected quotes. It should be noted that reporters takes on the latest developments often seem to move the market more at present:

• May updated cabinet on timetable for a deal

• We are negotiating in national interest and need to be satisfied deal is best we can get for the UK

• Still the case Britain cannot accept a N. Ireland specific backstop in the withdrawal agreement

• May told cabinet withdrawal agreement is 95% complete

• While other small technical issues exist on the withdrawal agreement, N. Ireland is by far the main issue outstanding

• Discussion on Irish backstop options was constructive

Overall the tone here is optimistically cautious, but it does sound like the only real stumbling block is the Irish backstop. With traders clearly on tenterhooks to this rumour and counter rumour it is worth taking a look back at the bigger picture. As the dust has settled on the earlier moves it is perhaps telling that the positive reaction to Raab’s comments outweighed the negative move on Donaldson’s and Ross’s. While it may be a stretch to read too much into this, it does appear that the market now has a greater propensity to rise on good news than it does to fall on bad, and this is no doubt a pleasing development for sterling bulls.

Looking ahead any more Brexit developments will likely drive the pound while the other side of the cross is expected to be sensitive to the outcome of today’s US Midterm elections. Should the Democrats take the House of Representatives as polls suggest, then the US Dollar could come under some pressure and provide an additional boost to this pair.

The outlook for the GBPUSD is looking more constructive with price back above the EMAs and the 8 period close to a bullish cross above the 21. A longer term double bottom may be forming but price need to break above 1.3310 before the range seen in the last 5-6 months will be broken out of to the upside. Source: xStation