Pound US dollar exchange rate: GBP/USD reaches $1.31 as deadlock looms in Washington

The main story of the night was that the Democrats were able to ride a “blue wave” to wrest control of the US House of Representative from the Republicans, splitting Congress after the Republicans were able to prevent a “blue Tsunami” by tightening their grip on the Senate.

Observers suggest this will likely lead to political deadlock in Washington and – most importantly for USD investors – it could prevent President Donald Trump from pushing through any more tax cuts or other fiscal policies.

Esther Maria Reichelt, FX strategist at Commerzbank said: “The midterm results indicate that more political uncertainty is likely for now and any big fiscal boost is unlikely which is pressuring the dollar lower.”

Meanwhile the pound remains buoyed this morning on growing optimism that a Brexit deal could be struck in the imminent future.

Senior Cabinet members are said to have agreed that they want an agreement in place by the end of November, bolstering hopes that Theresa May has managed to win support for her Brexit plans.

This follows a jump in Sterling yesterday after Brexit Secretary Dominic Raab gave a verbal ‘thumbs up’ upon leaving Downing Street following a crunch cabinet meeting.

Looking ahead to the second half of the week, we could see the GBP/USD exchange rate punch even higher by the end of the week as the UK publishes its latest GDP figures.

Economists forecast the UK economy will have boomed over the summer thanks to increased consumer spending, with growth forecast to have jumped from 0.4% to 0.6% in the third quarter, which will likely bolster the pound.

In the meantime however, the Federal Reserve will deliver its latest rate decision on Thursday evening and while no policy changes are expected from the bank this month, it could still result in the US dollar clawing back some ground if the Fed continues to strike a hawkish tone.