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Today was supposed to be Brexit Day. Instead the whole thing is on pause for another three months while the UK holds another General Election.

We’ll soon be entering the government’s quiet period, known as purdah, during which Downing Street won’t be announcing any major new policies that could influence the campaign.

Sterling is also facing a quiet period as well. The diminished threat of a no deal Brexit – for the time being – is providing solid support, but the upside is limited due to the political uncertainty.

Over the past few days cable has bounced between 1.28 and1.30, but there was a Fed meeting driving the dollar and the pound’s contribution to the volatility looked limited.

GBP/USD 4hr chart, MARKETSX: 09.00 GMT, October 31st, 2019

The deal on the table makes all the difference

We’ve been expecting an election for weeks now, and the upcoming poll is very different from a market perspective than it would have been if it had been held a couple of months earlier.

Boris Johnson managed to renegotiate Theresa May’s withdrawal agreement, replacing the backstop with something he claims is more palatable. The DUP don’t like it, however, and they’re not alone.

What’s important here is that if Boris gets to return to No.10 with a solid majority it’ll be his withdrawal agreement bill that he attempts to implement. This is a much better outcome for cable than the no deal Brexit he seemed intent on pursuing when he won the leadership contest.

Labour seems less market friendly no now deal off the table

For a while it looked like markets might have been relieved by the prospect of a Labour government due to its aversion to a no deal Brexit.

Back when Boris was talking about no deal, Labour was pretty tight-lipped about what exactly it wanted. Jeremy Corbyn has since come out in favour of a confirmatory referendum on a Brexit deal.

The political landscape has shifted away from a no deal Brexit. A Conservative majority may not be the downside risk it was once perceived to be. Labour still has the more market-friendly Brexit policy, but the Conservative alternate is not nearly as unpalatable as it once was. All parties in this election (other than the Brexit Party) are now offering to avoid a no deal exit.

This may free up traders to look a bit longer term and take into account Jeremy Corbyn’s radical plans for shaking up the system.

What are the risks of a hung Parliament?

The latest YouGov poll shows the Conservatives hold a 15-point lead over Labour at 36%, while Labour, at 21%, are just three points ahead of the Liberal Democrats. But it’s vital to remember that the Conservatives were polling at 44% the day before Theresa May called her disastrous 2017 election. Boris is by no means going to walk this one.

While another huge surge for Labour can’t be written off, perhaps the bigger threat comes from Nigel Farage’s Brexit Party. It could hoover up the votes of both Tory and Labour Leavers, weakening both parties. The other parties have given them the perfect campaign materials; Boris broke his own promise to ‘get Brexit done’ by October 31st, and Labour and the Lib Dems both want a second referendum.

Rather than looking at one established party dominating the others, this could be an election that sees the Brexit Party squeeze its way into Parliament, leaving no one with a majority. Not only would this promise many more months, if not years, of further chaos, but it would also put a no deal exit firmly back on the table, especially if hardcore Brexiters in the Tory party make alliances with Nigel Farage.

There really is a lot to play for, and the outcome will have huge implications for the UK’s future. But until we get more polling data and the candidates start doing things that are seen to dramatically alter their chances, the pound will be paralyzed by uncertainty.

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