Reports that the Democratic Unionist Party (DUP) would support Theresa May’s Brexit ‘Plan B’ on the provision that the Irish backstop is time-limited saw the pound rally overnight. Despite this, comments from Chief EU Brexit Negotiator Michel Barnier indicated the backstop could not be time-limited as that would defeat the purpose of guaranteeing no hard Irish border, which saw currency traders immediately short their pound positions. Mr Barnier said: “But the question of limiting the backstop in time was discussed twice, in November and December 2018. This backstop is the only one possible, because an assurance is no longer operational when it is limited in time.”
This morning the release of Germany’s IFO business expectations and business climate figures for January showed that they had both slipped further than expected..
Following the release of the European Central Bank’s (ECB) interest rate decision, which saw the bank leave rates unchanged at 0 percent.
ECB President Mario Draghi confirmed that rates would remain unchanged throughout the summer 2019 and “longer, if necessary”.
This saw the pound rally against the euro.
Mr Draghi said: “The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.”
The release of the Markit composite PMI showed that business growth in the eurozone had stalled to a five and a half year low this month, as the economy edged closer to stagnation, further weighing down the euro.
As there is a lack of any significant data for the Eurozone or UK, it seems likely that Brexit discussions will remain the main catalyst for movement in the pairing over the course of the session, with further reports of support for Mrs May’s deal likely to keep the pound afloat.