The Pound is about to change its course

Alexander Kuptsikevich FxPro

2024 has every chance of being the biggest election year, with well over half of the world's population going to the polls. The next chapter in this saga is today, with the announcement of the results of the UK general elections.

The results were generally in line with expectations without causing significant market volatility on the publication of the first results. However, Labour coming to power after 14 years of Conservative dominance will shift priorities somewhat. It could be good news for the Pound and the outperformance of the FTSE250 over the FTSE100 due to a greater bias towards the local market.

The Tories' main slogan, especially in the early years after the financial crisis, was austerity. Labour should be more focused on reducing income stratification through incentives for the poor and higher taxes for the rich.

Such an environment poses pro-inflation risks, which should force the Bank of England to hold the rate at a higher level than previously thought.

This is bullish for the Pound, which has lost over half of its value against the Dollar from its peak in 2007 to a bottom in September 2022. GBPUSD has been testing the resistance of this long-term descending channel in recent months. Changes in Britain's domestic politics may well be a factor in favour of the bulls in this battle.

Technically, the GBPUSD bullish bias will be confirmed with consolidation above 1.2850 – the area of this year's and last year's highs. The pound will also have a chance to recoup most of its losses to the euro after Brexit, as a break of EURGBP support at 0.833 (1.20 on GBPEUR) could trigger a repositioning of the exchange rate to the 0.71 (1.40) area.

While the expensive pound could challenge the valuations of large global companies in the FTSE100, pro-inflationary sentiment and the expected benefits to the economy from rising expenses promise to improve the position of the FTSE250, dominated by local companies. Separate market hopes are pinned on a housing recovery with the arrival of Labour. Accelerating house price growth and a revival in sales often correlate strongly with consumer spending trends, helping to accelerate the wider economy.

Author

Alexander Kuptsikevich

FxPro

Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.