Sterling is coming under heavy pressure on the back of reports that Theresa May has rejected an improved offer from the EU on the Irish border.
While this is only a minor setback in what is likely to be lengthy negotiations towards a solution that suits both sides, the pound has become extremely sensitive to any Brexit-related developments and this is quite clearly an important one. These flash headlines are likely to continue to have a significant impact on the currency over the coming months as traders fret about the prospects of a cliff-edge no deal Brexit and the potential chaos that could ensue.
A lot of pessimism around the deal has been priced in and while there have been some signs of positivity of late, this is a perfect reminder that big divisions still exist and it could be a very bumpy ride for the pound into year end. It’s worth noting that these headlines are prone to being either rejected or clarified in such a way that the initial knee jerk reaction is largely reversed. We’ve already seen some paring of the initial losses and traders will now be looking for clarity on exactly what these reports mean for the Irish border and an exit deal.
