GBP/USD Surges Past 1.30 Amid Favorable Opinion Polls

  • Technical Overview
  • Fundamental Overview

GBP/USD is trading at fresh multi-week highs above 1.30. A new opinion poll has shown a widening lead for Conservatives over Labour as Trump visits London. UK Construction PMI hit 45.3 points, above expectations.

Despite the recent surge, the Relative Strength Index is still below 70 – thus outside overbought conditions and allowing for more gains. Cable trades above the 50, 100, and 200 Simple Moving Averages, a bullish sign.

All in all, the bias is to the upside.

At the time of writing, GBP/USD has yet to confirm the break above 1.2985, November's high. The level is followed by 1.3013, October's peak, and the highest level since the spring. The next levels to watch are 1.3045 and 1.3080. 

Support awaits at 1.2950, which held sterling back in late November. Next, we find 1.2880 that provided support around the same time and also in mid-November. 1.2820 provided support several times and is the next level to watch.

Fundamental Overview

Too little, too late – that is the impression that many market participants have when seeing Labour's improvement in opinion polls. Investors prefer a victory for the Conservatives and feel more comfortable pushing the pound higher. GBP/USD is trading at the highest since mid-October, closing at 1.30.

The advance of Jeremy Corbyn's opposition party has been insufficient to take over Prime Minister Boris Johnson's Conservatives. The gap, according to Britain Elects' poll tracker, stands at 10.4 points, which would result in a landslide. Moreover, the latest opinion poll from Kantar shows the gap widening in favor of the Tories – a 12 point lead against 11 in the firm's previous survey.

Traders are suspicious of opinion polls as the pain from the 2017 elections remains fresh. The then PM Theresa May enjoyed a whopping 20-point lead only to lose her absolute majority. However, with nine days toward the poll, the relative stability of polls helps alleviate fears of a Corbyn-led government.

Markets are wary of the hard left leader's ideas for nationalizing several industries and from his neutral stance on the UK's exit from the EU. While Labour offers a softer Brexit and a referendum that may result in remaining in the EU – the most favorable option – investors prefer the certainty of Johnson's existing accord. Moreover, Tories' policies are market-friendly, despite some populist promises.

Dollar weakness, Donald Trump's visit
Pound/dollar also advanced due to US dollar weakness. The greenback gave ground on Monday after the ISM Manufacturing Purchasing Managers' Index dropped to 48.1 points, reflecting a contraction in the sector. Moreover, the fall in the PMI's employment component is a worrying sign ahead of Friday's Non-Farm Payrolls.

Markit's UK final Manufacturing PMI came out at 48.9 points, an upgrade to the initial release, but still contracting. Tuesday's Construction PMI also showed an ongoing squeeze. Nevertheless, sterling tends to ignore British economic indicators as all the attention is on the December 12 elections. 

On Tuesday, a potential barrier to further sterling gains may be President Donald Trump's visit to the UK. The mercurial leader of the free world is attending the NATO Summit and may intervene in the campaign. He previously backed Johnson and Nigel Farage, the leader of the Brexit Party, while bashing Corbyn. Trump is unpopular in the UK, and repeating similar comments may hurt the PM's chances. 

Moreover, the US wants to open the National Health Service (NHS) to American providers – something that most Brits strongly reject. Any comments about the NHS or drug prices may also weigh on sterling. 

Overall, politics are set to dominate GBP/USD trading, unless Sino-American trade talks yield excellent news. The recent commentary has been contradictory.

(fxstreet)

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