GBP/USD: Election risks weigh on Pound – Societe Generale

FXStreet Insights Team FXStreet

Societe Generale’s team highlights that GBP/USD has edged higher, helped by lower Oil prices, risk correlations and Asian FX intervention-driven US Dollar (USD) selling. However, they stress that UK local elections and seasonal patterns pose downside risks. Short positioning in the Pound and less tight correlation with UK 10-year Gilts are also noted as important context for the pair.

Cable lifted but downside risks linger

"In the UK, it’s Mayday for PM Keir Starmer and what looks like will be a devastating election defeat for the Labour Party could precipitate a leadership challenge. PM Starmer will reportedly count on reversing Brexit to save his premiership if the results go against him."

"In a speech planned for next Monday and designed to fend off a possible leadership challenge, the PM will say that closer relations with the EU are “crucial” to tackling the cost of living crisis caused by the Iran war as he seeks after today's elections."

"According to the Times, there will be a commitment to closer relations with the EU to bolster Britain’s economic and national security."

"GBP positioning is short but USD selling (Japanese/Asia intervention) and correlation with risk is flattering levels in cable above 1.36."

"The correlation with 10y gilt is not as compelling as it was last November (budget) or in September2022 (PM Truss). EUR/GBP trades not far off 4-month lows."

"Cable gains flattered by lower oil, correlation with risk and Asia FX intervention. Local elections today and May seasonality are downside risk. Support 1.3450, resistance 1.3730."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

GBP/USD fills weekly bearish gap vs USD; upside seems capped amid UK political chaos

The GBP/USD pair climbs back to the 1.3235 region during the Asian session and fails the weekly bearish gap opening amid a modest US Dollar downtick, though the upside potential seems limited.

EUR/USD declines to near 1.1450 amid concerns over progress for US-Iran peace deal

The EUR/USD pair drifts lower to around 1.1460 during the early Asian session on Monday. Concerns about progress for the US-Iran peace deal and expectations of higher US interest rates boost a safe-haven currency such as the US Dollar against the Euro. European Central Bank President Christine Lagarde is set to speak later on Monday.

$4,100 in sight: Gold appears vulnerable on bumpy US-Iran talks

Gold licks wounds early Monday, following a 1.5% weekly loss and eyeing more declines. The US Dollar stands tall on strained US-Iran peace talks after Trump’s threats, Strait of Hormuz closure. Gold looks to attack $4,100 amid a bearish technical setup on the daily chart.

Breaking: Iran closes the Strait of Hormuz amid ceasefire deal violation

Iran says it is closing the Strait of Hormuz after accusing the United States (US) and Israel of violating the ceasefire. According to Iran, the decision came over the continued Israeli strikes in Lebanon. The Iranian Revolutionary Guard Corps Navy issued a warning to all vessels: "Do not approach the Strait of Hormuz; otherwise, your security will be jeopardized."

Week ahead: Fed’s hawkish tilt and Iran deal turn focus to PCE inflation and PMIs

New Fed Chair Kevin Warsh didn’t waste any time in his first FOMC meeting in prioritizing the need for the central bank to bring inflation back within the Fed’s 2% objective, unsettling markets just as subsiding geopolitical risks had lifted the mood in the past week.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.