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FX.co ★ UK elections will help the pound strengthen briefly. Overview of GBP/USD

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Forex Analysis:::2024-07-01T22:43:04

UK elections will help the pound strengthen briefly. Overview of GBP/USD

The economic situation in the United Kingdom appears unstable. UK first-quarter growth was upwardly revised to 0.7% from 0.6%. However, monthly GDP data showed no growth for the month of April (growth in the services sector was offset by declines in manufacturing and construction). By the end of the quarter, UK manufacturing saw growth, with production volumes and new orders scaled up for the second consecutive month in June, while growth rates remained close to the highs reached in May. The PMI index slightly slowed from May's 51.4 points to 50.9 points, while the growth of manufacturing costs, on the contrary, reached a 17-month high.

UK elections will help the pound strengthen briefly. Overview of GBP/USD

The probability of a Bank of England rate cut in August has exceeded 65%, despite inflation parameters not yet meeting the established criteria. Elections in the United Kingdom will be held on July 4, and there is no doubt about the Labour Party's victory. Financially, the party adheres to a conservative position, so the bond market has not yet reacted to the expected win. The most important dates for the pound are July 17 and 18, when the Consumer Price Index will be published, followed by the next employment report. Current data (easing inflation, rising prices in the services sector, and progress in reducing wage growth rates) suggest that the BoE may lower the rate in August.

This is a bearish factor for the pound, but until new data appears, it may try to rebound from reduced political uncertainty after the elections and move slightly higher.

The net short GBP position decreased by 0.3 billion to 3.5 billion over the reporting week, while the bullish bias remains intact. However, there has been a slight decrease for the second consecutive week. The price has turned downward, suggesting that the pound may continue to fall in the short term.

UK elections will help the pound strengthen briefly. Overview of GBP/USD

The GBP/USD pair, as expected, held above the support level of 1.2620. The corrective rise is anticipated to be short-lived, with the nearest resistance at 1.2740, as the pound has a small chance of rising above this mark. We expect that after it finishes its corrective rise and consolidates, the pound will resume its decline.

Analyst InstaForex
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