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UK election results imminent, Comey testimony a non-event so far

Voting in the UK election occurred throughout the day on Thursday and there are just a few short hours before exit polls begin to show results of the hotly contested race pitting UK Prime Minister Theresa May and her Conservative Party against Jeremy Corbyn and his Labour Party. Final opinion polls prior to the start of voting today showed a modestly expanded lead for Conservatives over Labour than had been the case in the past few days. Whichever way the election goes, the pound is expected to make a significant move, at least as an immediate reaction to tonight’s outcome.

Meanwhile, on the other side of the Atlantic, US markets were preoccupied with the beginning of former FBI Director James Comey’s testimony in front of the US Senate about his past interactions with President Trump. In this first session of testimony, Comey came out strongly at the very beginning, essentially characterizing President Trump as a suspected liar. But through the course of the hearing, the former FBI chief did not reveal any major new information that would significantly intensify the case against Trump, other than what had already been widely publicized.

Markets initially took this lack of new or irrefutable evidence against Trump as yet another sign to rally. During the course of Comey’s morning testimony, US stocks rose off a flat open, and the Dow was up around 80 points at one time to hit a new record high before paring gains later in the day. The US dollar, also, remained strong and well-supported throughout the day, as safe haven assets like gold and the Japanese yen were pressured.

Amid the relatively uneventful Comey testimony along with high anticipation of exit poll results from the UK due out in the evening, GBP/USD remained relatively range-bound on Thursday, as might be expected. Going forward, into late Thursday and Friday morning, the results of the UK election will be the primary driver of GBP/USD movement. As noted on Wednesday’s analysis, potential pound reactions to the election outcome will likely be as follows:
  • If UK Prime Minister Theresa May’s Conservative Party wins by a large margin, the pound should see a strong boost as Brexit-driven conflict within the government would likely be ameliorated.
  • If Conservatives win by a small margin, the impact could be neutral to somewhat negative, as the status quo will not have been materially altered but disappointment that May will have failed to secure a strong mandate could pressure sterling.
  • If a hung Parliament results, which should lead to a multi-party coalition government, the sheer uncertainty produced by this outcome could weigh very heavily on the pound.
  • In the unlikely event that Labour is victorious, the immediate impact on the pound should also be negative due to the many uncertainties that would arise surrounding Brexit negotiations going forward.
A key GBP/USD level to watch as election results emerge remains at the 1.3000 psychological resistance level to the upside. A strong break above 1.3000 on an election-driven boost for the pound could target a further resistance level around the 1.3250 price region. If, however, GBP/USD fails to break above 1.3000 and instead breaks down below the notated uptrend line on a surprise pound-negative election outcome, key short-term downside targets are at the 1.2800 and 1.2600 support levels.

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