A lack of clarity and rising odds of a general election have weighed on the British pound in Wednesday trading. On Monday GBP/USD managed to trade above the key psychological level of 1.30, but has since backed off, falling into the 1.28 handle as traders booked profits from long positions.
On Tuesday, MPs voted 329 to 299 in favor of the government's Withdrawal Agreement Bill (WAB). However, in a key second vote, MPs voted down by 322 to 308 the government's bid to fast-track the legislation through Parliament to achieve Brexit by October 31st.
Further time to debate the current Brexit legislation could result in significant amendments being made. When the Withdrawal Agreement Bill returns to the House of Commons for a final reading, it could still be rejected.
Last weekend, Prime Minister Boris Johnson was forced to request an extension until January 31st. The EU is currently deciding whether to grant the UK another extension and the BBC has reported that Downing Street will push for a general election if a three-month delay is granted.
The harmful impact of Brexit uncertainty was reflected in Tuesday’s CBI Industrial Order Expectations release. The figure released by the Confederation of British Industry showed that British manufacturers expect a widespread drop-off in orders over the next three months, due to the slowing global economy, Brexit uncertainty and concern over trade barriers.
Looking at the GBP/USD daily chart we can see that price is holding above the 200-period simple moving average, indicating that the bulls technically have the upper hand on that time frame. While since October 10th the pair has seen a long string of days with trading ranges greater than 1%, volatility may begin to decrease as the market adopts a ‘wait and see’ stance.
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