GBP/USD: BoE shift and political uncertainty ahead of election to weigh on the pound – MUFG

Analysts at MUFG Bank, see the likelihood of the pound suffering a setback in the run up to the election has now been reduced although certainly not eliminated. They consider It will still be difficult for the GBP/USD pair to break above 1.3000 until there is more clarity.  

Key Quotes:

“Our short GBP position is to take advantage of a potential pick up in political uncertainty in the run up to the election. The Tories already have a large lead over the Labour party in the opinion and it is unlikely to widen much further. Market participants will be reluctant to lift cable above the 1.3000-level until there is more clarity after the election. It leaves the balance of risks more skewed to the downside for the GBP in the run up to the election given there is higher likelihood that the polls could begin to narrow and creating more political uncertainty.”

“The incoming economic data flow from the UK has taken a negative turn recently which if it continues will further encourage building BoE rate cut expectations. The GBP could also be challenged by more risk-averse trading conditions which started to creep in last week.”

“Public opinion polls would need to shift decisively to trigger a more volatile GBP. It has not happened yet broadly, although we note Britain Elects Poll Tracker shows the gap closing. Downside risks for GBP would increase if the gap starts to narrow across a wider number of polls, which would increase political uncertainty. It would open up GBP more to weakness coming through from the UK economy. Key support for cable is located at 1.2800, and then at 1.2700, the 200-day moving average.”