Date: 24 Oct 2019

The British pound eroded its weekly trading gains against the U.S Dollar on Wednesday, as market jitters increased over fears of an upcoming UK election battle. UK Parliament voted to back British PM Boris Johnson’s Brexit deal, however, lawmakers inside the House of Commons ruled against fast-tracking the new deal into law before October 31st.

Leading political analysts now believe the uncertainty caused by UK lawmakers delaying the implementation of Boris Johnson’s Withdrawl Agreement Bill will lead to a UK general election before the end of the year. Sterling came under pressure, as the upcoming election battle creates further uncertainty for the UK economy.

If European Union leaders agree to a Brexit extension this week, it is thought that the United Kingdom’s departure date to leave the EU will now be January 31st next year. It is still possible that the EU could deny the extension or give the UK a Brexit extension of around six months. EU leaders are expected to deliver a decision over the Brexit extension tomorrow.

Although Boris Johnson’s new Brexit deal has been approved, the United Kingdom could still face years of political wrangling over the terms of the Withdrawl Agreement Bill. PM Johnson’s Brexit deal still ties the United Kingdom to the EU until at least January 2021, and also forces the UK to pay large amounts of money to the European Union each month.
The British pound is likely to remain volatile and vulnerable to further declines if a UK election is called, as Boris Johnson could struggle to form a majority government without the backing of the Brexit Party, who are currently unhappy with PM Johnson’s new Brexit deal.

 

GBP/USD Daily Candlestick Chart | Source: ActivTrader

GBP/USD Daily Candlestick Chart | Source: ActivTrader

 

The British pound has reversed sharply from the 1.3000 level against the greenback, leaving the possibility that a medium-term top may be in place. The recent run higher has also created substantial bearish MACD price divergence across the lower time frame, which extend down towards the 1.2500 support level.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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