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GBP/USD Exchange Rate Rangebound, EU Agrees to Brexit ‘Flextension’ but Election Risks Remain

GBP/USD Exchange Rate Steady as Brexit Delayed Again

The Pound US Dollar (GBP/USD) exchange rate opens the week rangebound as markets respond to the EU decision to grant the UK another Brexit extension.

At the time of writing the GBP/USD exchange rate is trading at around $1.2830 this morning, virtually unchanged from the day’s opening rate.

Election Uncertainty to Infuse Volatility into the Pound (GBP)?

The Pound (GBP) is trading in a narrow range today, after the EU announced its decision to offer another Brexit delay to the UK.

President of the European council, Donald Tusk made the announcement on twitter this morning.

However given it was widely anticipated by markets, the decision has so far failed to have any real impact on the Sterling.

Instead the focus for GBP investors appears to be on whether the UK could soon face a snap election.

Prime Minister Boris Johnson is set to put forth a motion later this evening, calling for a general election to be held on 12 December.

Under the Fixed Terms Parliament Act Johnson will need to secure the backing of at least two thirds of MPs to succeed.

While Johnson may struggle to garner the numbers needed, there may be an alternative routes to an election which will be tested through the week to come, with the resulting uncertainty likely to weigh on Sterling sentiment.

US Dollar (USD) Lacks Direction Ahead of Fed Rate Decision

Meanwhile, any upside potential in the US Dollar (USD) looks likely to be highly limited through the first half of the week as markets brace for the Federal Reserve’s rate decision on Wednesday.

The Fed is overwhelming forecast to deliver its third consecutive rate cut this month, with CME’s FedWatch Tool placing the odds of an October cut at 94%.

This comes as US-China trade dispute appears to have taken its toll on the US economy over the last six months, with the malaise in US the manufacturing sector now starting to spread to other parts of the economy.

However with the cut largely priced in by markets any subsequent movement in USD exchange rates is likely to be dependent on the Fed’s forward guidance. Could the US Dollar rally if the bank signals plans to pause rates in the coming months.