GBP Higher Despite Political Uncertainty

GBPUSD continues to push higher ahead of the weekend with recent GBP gains bolstered by a weaker US Dollar. We’ve heard chatter of fund managers unwinding GBP short positions recently, reflecting the shift in sentiment around political change in the UK. With Andy Burnham widely expected to take over as Labour leader this month and replace Kier Starmer as the UK PM, GBP has been trading on a better footing recently. This price action either reflects optimism around Burnham in particular or traders’ contentment that Starmer is stepping down. Either way, we haven’t seen the typical GBP-weakness which we’ve seen around prior leadership changes, there having been 7 in the last ten years.

Cooling Fed Rate Hike Prospects

Alongside better optimism around the UK political shift, feeding into a stronger GBP, the pair is also being boosted by a weaker US Dollar. Yesterday’s NFP release came in sharply below expectations at 57k vs 114k expected. Additionally, we saw heavy downward revisions to the two prior monthly readings reflecting a much weaker jobs picture in the US than previously though. US rate hike expectations have cooled on the back of the data and are likely to cool further in response to any more incoming US data weakness.

Technical Views

GBPUSD

 The sell off in GBPUS has stalled for now into a further test of the 1.3165 level. Price has since bounced and is now back above the broken triangle lows, putting focus on a test of the 1.3446 level next and the triangle highs just above. With momentum studies bullish, focus is on further upside for now.