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Pound US dollar exchange rate stumbles as EU demands Irish backstop alternative


Sterling surged at the end of last week amid speculation the two sides might be inching closer to a deal. But a deal remains elusive following a working lunch between British Prime Minister Boris Johnson and European commission president Jean-Claude Juncker in Luxembourg today. While Mr Johnson said he was “cautiously” optimistic going into the meeting, it appears no desirable progress was made, with Mr Juncker stipulating that the onus for an alternative to the Irish backstop remains in the UK’s court.

A statement from the European Commission read: “President Juncker recalled that it is the UK’s responsibility to come forward with legally operational solutions that are compatible with the withdrawal agreement.

“President Juncker underlined the commission’s continued willingness and openness to examine whether such proposals meet the objectives of the backstop. Such proposals have not yet been made.”  

Adding to pressure on Sterling, a subsequent statement released by Downing Street said Mr Johnson had “reiterated that he would not request an extension and would take the UK out of the EU on the 31 October”.

Meanwhile, a flight from risk-sensitive currencies stoked demand for the safe-haven US dollar.

The risk-off mood comes in the wake of a series of drone attacks on oil facilities in Saudi Arabia.

While Houthi rebels in Yemen are claiming responsibility, US intelligence refuses to accept the official story, pointing the finger of blame instead at Iran.

With President Donald Trump threatening military action, fears for a Middle East conflagration are now driving investors toward the US Dollar.

Looking to the week ahead, the spotlight falls on central bank monetary policy.

The Federal Reserve is widely expected to cut interest rates at its policy meeting on Wednesday.

While the move is largely priced in, the US dollar may face some downside risks if the bank hints at making more cuts.

While the Bank of England is expected to make no policy changes at its Thursday meeting, further potential for insights into Brexit could influence GBP exchange rates. 



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