On The Defensive Ahead Of Local Elections

GBP weakness ahead of Thursday’s local elections across much of the UK has been the major point of note in Asia-Pac G10 FX trade. Sterling has edged away from worst levels of the session, but is still adrift at the bottom of the G10 FX performance table.

• While the headwinds for the ruling Conservatives are well documented (with a notable number of seat losses expected) a Sky/YouGov poll suggests “that Labour is likely to advance in key battlegrounds in the local elections but may struggle to win significant numbers of new councils outright… overall this means that Labour could face a potentially complex picture once the votes are counted on Friday, gaining potentially significant numbers of seats - experts suggest this could be in the hundreds - but few overall councils. “
• Note that Northern Ireland will also go to the polling booths re: the assembly. Brexit matters remain the divisive issue in Northern Ireland. On that front, the Times has reported that “Boris Johnson is to give talks with the European Union over Northern Ireland “one last chance” before introducing legislation that will allow him to override the controversial protocol.”
• GBP last deals ~75 pips softer around $1.2560 after showing as low as $1.2542. There isn’t much in the way of meaningful technical support observed until the Apr 28 low/bear trigger ($1.2412), with our technical analyst noting that the current bearish theme has be reinforced by the shallow correction from the Apr 28 low & the formation of a bearish flag patten.
• EURGBP is ~45pips higher on the day, just above GBP0.8450, after printing as high as GBP0.8462. The Apr 27 high (GBP0.8468) provides the most notable area of nearby technical resistance, with the technical outlook remaining bullish. A break above the aforementioned immediate resistance level would switch focus the Mar 31 high (GBP0.8512) which forms key resistance.
• Outside of the aforementioned political risk, Thursday also beings the latest BoE monetary policy decision. The MNI markets team expects a 25bp hike. We think that the biggest thing that could impact market pricing re: the BoE would be the removal of “coming months” from the forward guidance (see our full preview here).