Sterling a standout as election nears

April 27, 2015

Last week the pound put in a stellar performance against the dollar as GBPUSD hit a five week high against the tide of uncertainty ahead of the UK General Election in just ten days time. We have looked at how the political stalemate (see here) is likely to cap sterling gains, however this move higher has caught many off guard with a breakout above 1.5000 leading to a push to the mid 1.5100 area. Last week the market was reminded by the BOE that they will be raising rates, even if it is not clear when, ahead of most other central banks around the world. In the past nine months between the high and low sterling has decline 15% against the dollar, but bounced almost 4% in the past couple of weeks as GBPUSD was starting to look oversold. Whilst timing of the first hike from the BOE is still uncertain, when a market becomes oversold the reactionary move can be sharper than people expect and exaggerated as people scramble to cover positions. However, these gains are going to be hard to hold onto as the election nears, with a hung parliament all but certain, further upside to sterling could be hard to come by.

Today sees some US services PMI survey data released and then overnight the RBA’s Glenn Stevens speaks so watch out for possible reaction from the Aussie. The week gets busier with UK GDP tomorrow and the Fed’s FOMC rate decision on Wednesday.

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