Sterling was volatile on Wednesday as conflicting reports over the state of Brexit negotiations sparked choppy movements against the euro and dollar.
The pound started the day under pressure, down 0.1% against the euro and flat against the dollar at a one-month low. It followed the dour mood of Tuesday when Downing Street said a Brexit deal was “essentially impossible” and Irish leader Leo Varadkar said a deal before 31 October would be “very difficult.”
However, sterling rallied at around 9.30am UK time after the Times reported that the EU was set to make “a major concession” by allowing Northern Ireland to leave the so-called Irish backstop after a number of years.
But the rally had faded by lunchtime, as traders reasoned that a time-limited opt out for Northern Ireland may not be enough to get a deal over the line.
“While this appears constructive No 10 has already told the EU that it won’t accept a Northern Ireland only backstop - regardless of a time-limit - and it’s quite feasible that this is little more than posturing and the next move in the Brexit blame game,” David Cheetham, chief market analyst at trading platform XTB, wrote in an email.
Sentiment suffered further after a speech from the EU’s chief Brexit negotiator Michel Barnier delivered on Wednesday afternoon.
“To put things very frankly, though, and to try and be objective, this particular point, we are not really in a position where we are able to find an agreement,” Barnier told the European Parliament. He said the EU had “serious concerns” about Boris Johnson’s Brexit withdrawal proposals.
By 3.55pm, the pound was down 0.1% against the euro to €1.1131. Sterling was flat against the dollar at $1.2223.
“Right now, the indelicate art of trading sterling against a backdrop of Brexit mayhem and ambivalent economic trends is an exercise in gauging the extent to which risks are relatively priced or overpriced over the crosses,” Ken Odeluga, chief market analyst at City Index, said in an email. “Like Brexit itself, no one would describe the methodology as scientific.”
On Tuesday, new IMF chief Kristalina Georgieva said in her first speech since landing the top job that Brexit was contributing to a global growth slowdown. Georgieva told the BBC Brexit would be “painful” whatever form it takes.