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Brexit and UK Election Uncertainties Keep Pound to US Dollar Exchange Rate Outlook Pressured

Pound to US Dollar Exchange Rate Sheds a Third of Last Week’s Gains

Despite speculation that the Federal Reserve will become more dovish on US monetary policy next week, the Pound Sterling to US Dollar (GBP/USD) exchange rate has been unable to hold its ground this week as Brexit uncertainties revive and knock the Pound (GBP).

Last week was a highly bullish week for GBP/USD, as the pair opened the week at the level of 1.2652 and surged over three cents to close at the level of 1.2978.

Near the beginning of this week, GBP/USD briefly touched on a 5-month-high of 1.3011, before sliding as the Brexit process hit fresh obstacles.

At the time of writing on Thursday, GBP/USD is trending near the level of 1.2882 as the Pound outlook becomes clouded with Brexit delay and UK general election speculation.

Pound (GBP) Exchange Rates Jittery as Brexit Uncertainty Returns

For much of the past week, the Pound surged on hopes that UK Prime Minister Boris Johnson’s newly reached Brexit deal could pass through parliament and lead to a relatively soft Brexit sooner rather than later.

However, Johnson’s attempt to fast-track his Brexit deal was blocked by parliament, amid concerns that the deal needed time to receive proper scrutiny.

As a result, a delay to Brexit is now widely expected. Johnson has already requested an extension, but while the EU is expected to accept the bloc has yet to confirm how long the extension will last.

This extension uncertainty is weighing on the Pound, as is uncertainty over whether or not Britain will see a snap general election if a longer delay is confirmed.

There are reportedly splits within the ruling Conservative Party and opposition Labour Party as to whether a winter election is a good idea. One Conservative MP said:

‘I’d rather we focused more on passing the bill. It would be better to go to voters having finished the job. I feel that’s what most colleagues want.’

US Dollar (USD) Exchange Rates Steady Ahead of Notable US Ecostats

A lack of fresh support for the US Dollar (USD) hasn’t prevented it from gaining against a weaker Pound this week.

Optimism around US-China trade negotiations is keeping the US Dollar fairly supported, but US data has been disappointing and markets still widely expect the Federal Reserve to take a dovish stance in its anticipated October policy decision next week.

Some of this week’s disappointing US ecostats include Tuesday’s surprising contraction in existing home sales, as well as other weaker than expected mortgage and housing data yesterday.

For now though, investors are hesitant to move too much on the US Dollar ahead of this afternoon’s data, amid general anticipation for next week’s Federal Reserve news.

Pound to US Dollar (GBP/USD) Exchange Rate Awaits Brexit News and US Data

While the US Dollar has benefitted from the Pound’s weakness in recent sessions, most of this week’s notable Pound to US Dollar (GBP/USD) exchange rate movement has ultimately been caused by Brexit news driving the Pound.

Markets are now carefully watching the EU to see how long the Brexit process could be delayed for.

If France President Emmanuel Macron is able to persuade the EU to only allow a short delay, the Pound could fall as no-deal Brexit fears would return.

However, a longer delay until at least January is seen as the most likely outcome. This would lead to months more uncertainty and potentially a general election which would also weaken the Pound outlook.

The US Dollar, on the other hand, will be driven by key US ecostats in the coming sessions ahead of next week’s anticipated Federal Reserve policy decision.

US durable goods orders from September will be published this afternoon, as will Markit’s US PMI projections. Michigan consumer sentiment survey data from October will be published tomorrow.

With the Federal Reserve expected to cut US interest rates next week, weak US data could lead to further Fed rate cut bets and this would help the Pound to US Dollar (GBP/USD) exchange rate to advance.