Sterling (GBP) Outlook Post-Election: GBP/USD and EUR/GBP Price Analysis
While the Q4 outlook has improved lately, Q3’s financial performance should turn out to be rather weak. As such, while the outlook for the dollar is positive, the euro is likely to topple down. Otherwise it will remain bearish even with a strong rebound. Growth prospects are good, and we have policy lodging in place to support the rising inflation.
Sterling is digesting recent gains as markets expect a Brexit deal, eventually subject to support from UK MPs. Sterling continues to recover from the hope of a Brexit deal Sunrise headlines US stock markets higher yesterday marking gains more than 2% after the US midterm elections to benefit. Sterling is having a roller coaster ride today. Sterling pierced longer-term resistance levels against the US dollar and the euro after UK PM Boris Johnson won a clear and unexpected majority in the general election. In recent days, it has been supported by headlines that a UK-EU Brexit deal could be finalized any time soon. The pound sterling received a boost after British bookmakers increased the chances that PM Johnson will continue on after the election.
The pound came under pressure on Tuesday after the Bank of England Governor Mark Carney, soon appeared to rule out a rate hike at any time. He is one of the winners as an election result is driving an outlook for faster inflation in Europe, according to bond market lessons. Over the week, it remains the strongest for now, followed by the euro and Swiss franc. The British pound spiked higher after Thursday’s 22:00 exit poll predicted that PM Johnson would win 368 seats, giving him a large majority in parliament and making it easier for him to push through his Brexit plans. It continues to set limits against a number of currencies before the December 12 general election, with current UK PM Boris Johnson holding a healthy lead in the polls test. It surpassed his colleagues on Monday.
Sterling exchange rates have remained relatively stable the week from now as we enter Crunch time for Theresa May and the UK, Brexit talks have begun in the last two weeks. Turkish lira (TRY) exchange rates rose Wednesday, to gain news that Turkey raised the central bank raised one of its four interest rates set by 75 basis points. The U.K. 10-year break-even rate, a measure of expectations for retail prices derived from government bonds, rose to its highest in nearly three years.
Technically, dollar after retail sales yesterday arm back under pressure, but overall outlook remains mixed. At 5 out of 7 historical elections since 1988, the US dollar formed a key point about 2-3 weeks after the US election (about the time frame we are in now). It is now expected by many to extend its 2016 run higher. The Australian dollar faces a shortage of heavyweight domestic data, which unfortunately leaves traders unpredictable trading history in the driver’s seat. It enjoys a surge of rising demand as a result, allowing it to strengthen against its main peers. The risk-sensitive Australian dollar (AUD) rose against sterling to China its nearly five-year ban on US poultry imports boosting investors’ hopes that a US-China Phase One trade agreement could be secured in the near future.
Sterling dealers are expected on Monday release of the UK Rightmove House Price Index for November. Investors jumped on the positive news to increase the demand for the Antipodean currencies. Australian dollar investors will be speech to the future by the Assistant Governor, Christopher Kent RBA. So-called safe-haven assets such as the Japanese yen and Swiss franc tumbled, while riskier currencies such as AUD and NZD strengthened significantly.
Markets were shocked last Thursday when three Monetary Policy Committee (MPC) voted to raise 25 basis points installments. The demand for ‘put options’ (to sell the pound in the future) is now outweighing the demand for ‘call’ options (sterling to buy). A quick drop in the EUR to GBP exchange rate has seen meteorologists looking for their post-Brexit predictions on the pair with further losses always likely to rip. Growth would continue to be in line with potential.