Seats Forecasts Weigh on GBP

1 June, 2017

Per the latest ‘poll of polls’ released yesterday May 31, conducted by the Press Association based on a 7-day rolling average of all published polls, approval ratings for the Conservative and Labour Parties are 44% and 35% respectively. The Conservatives’ lead is 9% which is higher than the previous shocking low 5% lead.

Currently the breakdown of the 650 seats in the House of Commons are: 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.

Notably, per the latest prediction conducted by YouGov, the Conservative Party will likely win 310 seats, Labour 257, SNP 50 and the Liberal Democrats 10. That said, it is likely that none of the parties will win more than half of the 650 seats, which is at least 326 seats.

The reason behind the snap election decision was to increase the Conservatives’ dominance in Parliament. However, now it looks ironic that the Conservatives will likely have 20 seats less than their present 330 after the election, and Labour will likely gain nearly 30 seats.

If the YouGov’s prediction is correct Theresa May might face the crisis of stepping down which would likely result in a GBP sell-off. The Conservative Party now must do the final sprint before June 8th to win 16 seats more (326 – 310) for a modest victory.

If none of the parties win more than half of the seats, then it will result in a Hung Parliament. In this situation, the majority party must consider whether to remain as a narrow majority or to unite with other smaller parties. After the 2010 general election, the Conservative Party chose to unite with the Liberal Democrats.

On Wednesday, GBP/USD weakened and tested the significant support line at 1.2800 again, hitting a 5-week low of 1.2768. It was followed by a robust rebound, testing the near term major resistance level at 1.2900, hitting a 3-day high of 1.2920, then corrected by around 80 points. In early trading on Thursday June 1st. GBP/USD is at 1.2875. Be aware that before the election outcome is released increased uncertainty will likely pose downward pressure to GBP.

US Pending home sales (YoY) released yesterday saw a 3.3% drop in April from a 0.8% growth in March, marking the biggest drop since June 2014. After the release of the data, USD weakened across the board.

The dollar index hit a 1-week low of 96.78, marking a 0.35% intra-day fall. USD/JPY hit a 2-week low of 110.47. The weakening of USD pushed gold up, spot gold rallied 0.46%, hitting a 5-week high of 1274. EUR/USD rallied 0.5%, hitting a 1-week high of 1.1255. GBP/USD hit a 3-day high of 1.2920. USD rebounded in US afternoon session. On Thursday in early European session, the dollar index bounces and tests the 97.00 resistance level.

The crucial US ISM manufacturing PMI for May will be released this afternoon at 15:00 BST. It has remained above 50 since October 2016, however, seeing a falling trend over the past three months. Be aware that it will likely cause volatility for USD and USD crosses.


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