GBP/USD – Election Fallout Sends Pound Lower

The British pound continues to lose ground in the Monday session, and is down 0.70 percent. In North American trade, GBP/USD is trading at 1.2650, close to 8-week lows. On the release front, there are no British events on the schedule. In the US, today’s highlight is the Federal budget deficit. On Tuesday, the UK will release a host of inflation indicators. CPI, the key gauge of consumer inflation, is expected to remain at 2.7 percent. The US will publish CPI, with an estimate of 0.00%.

The British election has thrown the country into political turmoil, as Prime Minister Theresa May failed to garner a majority, resulting in a hung parliament. May is desperately trying to remain in power, and has pinned her hopes on reaching an agreement with the DUP, a small, conservative Irish party. However, no deal has been reached yet, and the political uncertainty is weighing on the pound. GBP/USD has slumped 2.4% since the election. As if the bruising election is not enough on May’s plate, Brexit negotiations are scheduled to commence on June 19. On Monday, the EU warned that it could delay talks by a year, saying it would not discuss a free trade agreement until the “divorce terms” were first concluded. The British government has said it wants to begin negotiations next week, but May is coming to the table with a greatly weakened hand, with surly European leaders in a decidedly uncompromising mood. The sobering political reality for May means that she will likely have to show more flexibility over Brexit, given her political vulnerability, even if she puts together a government with a razor-thin majority.

Report Warns on Bad Brexit Deal or No Deal for UK Businesses

The Federal Reserve will meet on Wednesday, and the markets have priced in a rate hike, which would be the second increase in 2017. The likelihood continues to hover around the 90% level, so it would be a shock if the Fed did not make a move. However, an additional rate hike seems much less likely in the third quarter, with the CME forecasting the odds of a September move at just 26%. The markets are skeptical about another rate hike in the second half, unless the political situation in Washington shows signs of stabilizing. The Trump administration remains in damage control mode, as it’s difficult to assess the damage from the dramatic evidence of ex-FBI director James Comey. With dark clouds hovering above the White House, the Fed and the markets have serious concerns with regard to Trump’s ability to move forward with his economic agenda.

GBP/USD Fundamentals

Monday, June 12

• 13:01 US 10-y Bond Auction
• 14:00 US Federal Budget Balance. Estimate -87.3B

Tuesday (June 13)

• 4:30 British CPI. Estimate 2.7%
• 8:30 US PPI. Estimate 0.0%

*All release times are EDT

*Key events are in bold

GBP/USD for Monday, June 12, 2017

GBP/USD June 12 at 13:05 EDT

Open: 1.2743 High: 1.2770 Low: 1.2644 Close: 1.2647

GBP/USD Technical

• GBP/USD showed little movement in the Asian session. The pair posted considerable losses in European trade and has ticked lower in North American trade
• 1.2571 is providing support
• 1.2706 has switched to resistance following strong gains by the pair on Monday

Further levels in both directions:

• Below: 1.2571, 1.2401 and 1.2313
• Above: 1.2706, 1.2865, 1.2946 and 1.3058
• Current range: 1.2571 to 1.2706

OANDA’s Open Positions Ratio

In the Monday session, GBP/USD ratio is showing short positions have a majority (53%), indicative of trader bias towards GBP/USD continuing to move lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.