At 10pm on Thursday 7May the BBC exit polls were released, defying the opinion polls from before the election, predicting the Conservative Party would gain the majority of seats. Sterling rallied in the FX markets nearly 2 cents (1.5245 – 1.5447), as traders repositioned for the exit poll outcome. The expectation in the run up to the election had been for a coalition government, however the permutation’s of government varied, but a Conservative majority was a distant outlier.
As the election night continued it became clear than the Conservative Party would form government and the financial markets bid up the price of Sterling. This move in cable has continued, as sterling has pushed higher, though this is now also cemented by the US dollar.
The market sidestepped the NIESR growth estimates of 0.4% compared with analysts’ expectations of 0.6%
The Bank of England has cut their growth forecast for the UK economy for this year and next within their inflation report. Though the central bank highlighted their view of inflation rising substantially stating they view inflation “hitting the two percent target in two years’ time”. On Tuesday the ONS released employment statistics that showed a seven-year low in unemployment and an improvement in average earnings. The wage pressure and limited economic slack combined with recovery in oil prices is the premise for the prediction of an uptick in UK inflation.
The latest move it’s down to the US dollar weakness. Last week the Non-Farm Payrolls missed the median estimate, but the unemployment rate did drop to 5.4%.
On Wednesday the latest initial jobless claims came in at 264,000 compared to the previous weeks 265,000, with continuing claims holding steady at 2.2m.
GBPUSD has been in a strong uptrend over the last seven trading sessions, trading above 1.58, the highest level since November 2014. The move in cable may continue higher, however there is expected to be some consolidation at these levels, before regaining momentum as the US dollar is on the back foot.