Sterling falls as investors await EU response on Brexit delay

Pound down 0.2% vs dollar and euro

Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

LONDON, Oct 24 (Reuters) - Sterling fell on Thursday as investors awaited the European Union's decision on whether to grant Britain a Brexit extension and for how long.

After surging to a 5-1/2 month high on Monday, the pound has been back under pressure after lawmakers in the UK blocked Prime Minister Boris Johnson's plan to push through a Brexit withdrawal agreement and get the UK out of the EU on Oct. 31.

Johnson has vowed to seek a general election if Brexit is delayed until January, although many analysts doubt whether there is sufficient support in the British parliament for a pre-Brexit election.

Either way, sterling traders realise the Brexit end game is more uncertain than they thought last week, setting up the pound for another rocky period.

On Thursday, the British currency weakened 0.2% to $1.2875 GBP=D3, while against the euro it dropped 0.2% to 86.315 pence per euro EURGBP=D3.

Analysts said the next big development for the pound would arrive once the 27 other EU countries are clear on the length of any delay they will grant.

"Although the French are pushing for a tighter deadline, the base case scenario remains until January 31. If this extension is granted, then a UK general election will likely be the next step," said Hussein Sayed, Chief Market Strategist at FXTM.

"If an election is called and approved by the House of Commons, expect to see more volatility in Sterling, although any downside pressure will be limited given that a hard Brexit scenario is now off the table."

Kit Juckes, an analyst at Societe Generale, said that "both a 'no deal' exit and a decision to stay in the EU are technically still possible, but neither is at all likely."

"EUR/GBP will meander until the last doubts about the nature of the exit are removed," he said in a note to clients.

(Reporting by Tommy Wilkes; Editing by Catherine Evans)

((thomas.wilkes@thomsonreuters.com))

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