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GBP/USD – Pound Hits 7-Month High Ahead of Election

The pound continues to gain ground, as the markets are pleased that Prime Minister Johnson remains ahead in the polls, with just one week to Election Day. In the Pacific region, the Aussie, NZ Dollar and Chinese yuan are trading quietly.
Kenny Fisher
GBP/USD daily chart, October 18, 2019

GBP/USD has posted gains for a fifth straight day. Currently, the pair is trading at 1.3138, up 0.25% on the day. The pair is at its highest level since early May.

Pound Climbs as Conservatives In Command

The pound gained 0.8% on Wednesday, its best one-day gain since mid-October. The markets are confident that Prime Minister Johnson will win next week’s general election, and there is optimism that he will be able to form a majority government. This would mean a stable government and likely a quick exit from the European Union, as Johnson has promised. The latest polls show the Conservatives with a 10-point lead over Labour. This is good news for the pound – investors prefer the pro-business stance of the Conservatives, especially with Labor saying it plans to nationalize energy and water utilities.

Pound Shrugs as PMIs Point to Contraction

There was no holiday cheer from this week’s PMIs, which are important gauges of the health of the British economy. Manufacturing PMI and Construction PMI  managed to beat their forecasts in November, both remain mired below the 50-level, which points to contraction. This trend continued on Wednesday, as the Services PMI improved to 49.3, but missed the estimate of 50.0 pts. These readings in contraction territory are consistent with forecasts that the British economy will contract by 0.1% in the third quarter. Further weak economic data could sour investor sentiment and spoil the pound’s party.

Technical Analysis

GBP/USD is on an upward trend and continues to break above resistance barriers. The pair broke above resistance at 1.3100 on Wednesday and is within striking distance of resistance at 1.3200. There is a strong possibility that the pound will test this line before the end of the week.

GBP/USD 1-Day Chart

Pacific Currencies – Summary

USD/CNY

USD/CNY climbed above 7.0700 on Wednesday, its highest level since October 23. However, the yuan has managed to recover somewhat, as the pair has retracted. Currently, the pair is trading at 7.0414, down 0.10% on the day.

AUD/USD

AUD/USD is trading at 0.6841, down 0.11% on the day. The pair showed a muted response to week numbers on Thursday. Retail sales in September slipped to 0.0%, down from 0.2% in August. The trade surplus narrowed to A$4.50 billion in September, down sharply from A$7.18 billion in the previous release. This was the lowest surplus recorded in 2019.

NZD/USD

After gains of almost 2.0% this week, NZD/USD has taken a pause. Currently, the pair is trading at 0.6536, down 0.19% on the day. The NZ dollar has benefited from solid Chinese service and manufacturing reports this week.

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