GBP/USD Rebounds Post a Slump on Increased Uncertainty

The UK general election will be held on June 8th –less than 10 days away.

Currently the breakdown of the 650 seats in the House of Commons are as follows: The Conservative Party has 330 seats, the Labour Party has 229 seats, the SNP has 54 seats, the Liberal Democrats has 9 seats and “other” parties have 28 seats. With a narrow majority, the Conservative Party will likely encounter hurdles from other parties during the Brexit negotiation process.

GBP/USD has rallied around 3.5% since Theresa May announced a snap general election, until giving up some of these gains on May 22nd, as markets have largely priced in the expectations on a landslide Conservative victory. GBP/USD hit a high of 1.3047 on May 18, last seen on September 29th.

However, the bullish momentum has waned since May 22, as the difference of approval rating between the Conservative and the Labour narrowed to 9% after Theresa May proposed the cancellation of free school lunches and reduction of free healthcare services for wealthy Senior Citizens.

The terror attack in Manchester on May 22, and the downward revised UK Q1 GDP released on May 25th, has further weighed on Cable.

Notably, per the latest polls conducted by YouGov after the Manchester terror attack, the Conservatives’ lead is now down to just 5%; 43% vs. 38%. A landslide victory for the Tory now appears to be uncertain. The increased uncertainty over the general election outcome has been weighing on GBP’s prospects.

GBP/USD fell by 1.2% last Friday, hitting a 1-month low of 1.2774, marking the largest intra-day fall since February. The downtrend was held above the significant support line at 1.2800 afterwards, where there is stronger support. However, if the support line is broken, we will likely see an extended downtrend.

Be aware that GBP crosses are likely to be volatile before and after the general election.

Tuesday May 30, during early European session, the dollar index hit the highest level of 97.68, last seen on May 19. Spot gold bulls have failed to break the resistance level at 1270 since Friday.

The US PCE and core PCE inflation figures for April, will be released this afternoon at 13:30 BST. Be aware that it will likely affect USD and USD crosses.