Politics Across the Globe Dominates Currency Sentiment

Confirmation from overnight financial markets that the Pound has been fixated on the latest and seemingly most closely followed pre-UK election poll, run by MRP YouGov.

It is billed as the poll that came closest to calling the unexpected result of the 2017 general election, although some of the build-up is helped by YouGov’s substantial marketing budget, the envy of rival pollsters. The methodology undertaken and technical term is “multilevel regression and post-stratification”. Whilst that sounds extremely scientific, it’s because this poll was the closest predictor of both the EU referendum and the 2017 Theresa May general election, that currency markets hold it in such high esteem. The single constituency focussed model predicts a huge Conservative and 359 seats (up 42) and a majority of 68.

It’s become folly to place your concentration elsewhere if you have exposure to GBP in the currency markets, either import or export side of the coin. And very much like our blog alluded to earlier in the week there was opportunity for exporters. It is now glaringly obvious that risk has gathered. GBPEUR pushing towards 1.18, GBPUSD could break the psychological and crucial 1.3000. GBPAUD has 1.92 in its sights, with 1.9700 and 2.0000 big technical areas that could well come into the collective conscience of currency traders if the Conservatives secure a majority.

It’s seems rather surreal to be calling President Trump, the US China trade negotiations and the Hong Kong situation a side show. But that’s very much how it is for the UK. But ignore at your peril and don’t underestimate this geopolitical story that is unfolding. Trump in another unprecedented and incendiary move has shown support for Hong Kong protest groups. Beijing has condemned the bill as “full of prejudice and arrogance”. Up until that point the USD had been well supported in Asia Pacific currency markets, after we had seen strong US GDP and PMI numbers, much better than predicted forecasts. This alongside strong Crude oil inventories was taking Wall Street on another leg higher in its current bull run.

Politics on whatever side of the world you are on, is dominating currency sentiment. And it’s often the most difficult trend to second guess.

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