Analysts at ANZ explained that the British pound first slumped, then lifted above where it had started, on contrasting Brexit headlines.
“The initial pessimism was initiated by reports that the European Union’s chief negotiator Michel Barnier had described Brexit talks as “deadlocked” over disagreement about how much the UK owes when it leaves. This saw the GBP fall around 1% to its lowest level in a month, as the legal limbo that would result from no deal by the deadline would be very bad for the UK economy.
However, just a few hours later, the GBP surged on reports from the German newspaper Handelsblatt that Barnier may offer the UK a 2-year “transition period”, during which the UK would remain a member of the EU’s interior market and customs union, subject to meeting all its EU member – and exit – obligations. It all underlines that as the deadline approaches, the ride is likely to only get bumpier. Further adding to the GBP murk, the Bank of England signalled last month that it may be ready to raise interest rates.”