Sterling briefly rebounded from near three-year lows versus the euro on Tuesday after German Chancellor Angela Merkel said the European Union would think about practical solutions regarding the post-Brexit Irish border.
Though the British currency later gave up much of its gains to trade broadly flat by the end of the London trading session, the magnitude of the pound’s moves took traders by surprise as Merkel’s comments didn’t indicate a fundamental shift in the European Union’s stance on Brexit.
British Prime Minister Boris Johnson fired the opening salvo in his bid to renegotiate Britain’s divorce terms from the EU, saying that the “backstop” – an insurance policy included in Britain’s Withdrawal Agreement with the EU to avoid the return of a hard border on the island of Ireland – should be replaced with a pledge.
The bloc and its leaders have repeatedly refused to reopen the Withdrawal Agreement. European Council President Donald Tusk said a letter sent to him by Johnson included no “realistic alternatives” to the contentious Irish backstop.
Italy’s prime minister announced his resignation on Tuesday as he made a blistering attack on his own interior minister, Matteo Salvini, accusing him of sinking the ruling coalition and endangering the economy for personal and political gain.
Prime Minister Giuseppe Conte, addressing parliament after it was recalled from its summer recess to decide the future of the 14-month-old government, accused League party chief Salvini of seeking to cash in on his rising popularity.
He described the actions of Salvini, who declared the coalition unworkable 12 days ago and called for snap elections, as recklessness “liable to tip the country into a spiral of political uncertainty and financial instability”.
Conte, who belongs to neither of the coalition’s two parties, said he would hand in his resignation later in the day, allowing the head of state to start formal consultations with parties to see if a new coalition can be formed.
USD – 19.00: FOMC Meeting Minutes