The British pound dropped below key support around the 1.2800 level against the US dollar on Friday after some negatively-perceived economic and political news emerged from the UK on Thursday. First, the UK’s Q1 GDP estimate released on Thursday morning was revised down to 0.2% against prior forecasts of 0.3%.
Even more damaging to the recently-strengthening pound, however, was the latest opinion polling for the upcoming June 8th UK elections that was released late on Thursday. The poll, conducted by YouGov/The Times, suggested that UK Prime Minister Theresa May’s Conservative Party is now leading by only 5 points ahead of its closest rival, the Labour Party, down from a 20-point lead less than two weeks ago. This sharp reduction in the Conservative lead weighed heavily on the pound, as it raised questions on whether May would be able to secure enough of a majority and mandate to fend off Brexit hardliners and deal with difficult Brexit negotiations in a smoother, less turbulent manner.
On the US side, the dollar found some footing on Thursday and Friday after having spent much of the past two weeks in a virtual state of free fall against a few other major currencies, most notably the euro and Swiss franc. This relative stabilization for the dollar was helped along on Friday by a better-than-expected US Q1 GDP reading, which showed an annualized 1.2% growth rate – higher than both the previous reading of 0.7% and the consensus forecast of 0.9%.
The pound’s sharp fall and dollar’s modest bounce on Friday resulted in a tentative GBP/USD breakdown below key 1.2800 support, as previously noted. This level also coincided with a clear uptrend support line extending back to the mid-March low. Additionally, directly below current price action is the support provided by the key 50-day moving average. With any further relief rally for the US dollar ahead of next week’s pivotal US jobs report and/or more pound jitters ahead of the early-June UK election, a follow-through breakdown below the noted support for GBP/USD could begin to target the next major support objective around the 1.2600 level.
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