Pound US dollar exchange rate: EU rejects Boris Johnson’s backstop proposal, GBP/USD slump

Pound US dollar exchange rate: EU rejects Boris Johnson’s backstop proposal, GBP/USD slump

In a four-page letter to European Council President Donald Tusk, the PM called for the “unviable” and “anti-democratic” backstop to be dropped, claiming it would risk undermining the Good Friday peace agreement. Mr Johnson suggested the backstop be replaced with “flexible and creative solutions” and a border maintained through an “alternative arrangement”. However, Mr Tusk rejected the PM’s proposal, writing in a tweet: “The backstop is an insurance to avoid a hard border on the island of Ireland unless and until an alternative is found. 

“Those against the backstop and not proposing realistic alternatives in fact support re-establishing a border. Even if they do not admit it.”

Sterling responded by moving lower as the ongoing stalemate leaves the UK on track for a no-deal Brexit in October.  

At the same time, the US dollar remained buoyed on Tuesday, with the currency continuing to benefit from safe-haven demand.

Lingering US-China trade war fears limited market risk appetite, feeding into demand for USD, despite Chinese telecoms giant Huawei receiving another 90-day reprieve from US sanctions.

As we approach the middle of the week investors are likely to turn to the annual gathering of central bankers at the Federal Reserve’s Jackson Hole symposium. 

The US dollar could move lower if Fed ChairmanJerome Powell uses the forum to signal future rate cuts.

A backdrop of heightened US-China trade tensions and fears for a slowdown in global growth has stoked speculation that the Fed will engage in further monetary easing this year.

In the continued absence of any notable economic data this week, the spotlight for GBP investors will remain on UK politics and a Wednesday meeting between Boris Johnson, French President Emmanuel Macron and German Chancellor Angela Merkel.

Published at Tue, 20 Aug 2019 14:36:00 +0000