More than ever, since I have been trading the forex markets, elections matter. The GBP has been stuck in ranges versus every major currency for months. Months! It’s been maddening. You can see these large ranges especially in the $GBPUSD, $GBPJPY, and $GBPAUD.
But during the last week of November, the GBP started to break these ranges. The culprit was the early polls in the UK showing that the PM’s political party, the Conservatives, would likely win a majority in Parliament. Months (years!) of British government gridlock, that prevented the UK and EU from coming to an agreement, looked to be over. And the markets began to get euphoric with increasing buying momentum building in the GBP across the board. The GBP exploded higher when exit polls confirmed the early poll results: Tories won an overwhelming majority in Parliament.
With such strong moves to the upside, it seems that the election has set the midterm direction in the GBP. However, this trading week has seen all of the post-election euphoria completely undone.
So now what? Well, the Bank of England (BoE) is slated to announce its last monetary policy decision of 2019 this Thursday morning. The BoE has been surprisingly hawkish all this year as they have allowed the economic data persuade them that the British economy has remained much more robust than they expected after the 2016 Brexit vote. I expect them to remain hawkish with the Brexit uncertainly largely assuaged with this general election. A hawkish BoE will see the GBP gain some support after the week’s corrective selloff. However, if the BoE suddenly changes its tune, the GBP correction lower will turn into rapid selloff.
Looking at the charts, the GBP is clearly waiting on the BoE. Trade what you see!