GBP/USD pares early losses as traders gear up for FOMC, UK election

• GBP/USD tries to overcome market pessimism spread through the YouGov MRP poll.
• The recent polls tilt towards a hung parliament, Tories get broad criticism.
• The US Fed’s dot plot, Powell’s speech will be the key to watch.

GBP/USD consolidates the early-day losses to 1.3145, -0.35% on the day, while heading towards the London open on Wednesday.

The quote slumped to the low of 1.3107 during the Asian session after the market favorite poll for the United Kingdom’s (UK) election, on December 12, suggest a hung parliament. The YouGov’s poll based on the MRP model now cuts down the number of seats, to 339 versus 359 prior, the ruling Conservatives Party was initially expected to win on November 27. On the contrary, the opposition Labour Party will grab 231 seats, an addition of 20 seats from November 27 prediction, the poll says.

Also increasing the fears of a hung parliament is the recent criticism of the Prime Minister (PM) Boris Johnson over various issues like a lack of sympathy, doubts over the future of the National Healthcare System (NHS) and concerns for Northern Ireland.

Further, the one-week Sterling risk reversals, a gauge of calls to puts, fell to -5.32, signaling the strongest bearish bias since September 2016.

On the other hand, trade tussle between the United States (US) and China continues with the latest words from the White House Adviser Peter Navarro saying “it's all up to Chinese.”

Given the British election holds the key to Brexit and its further dealings with the European Union, investors are all cautious ahead of the event. Additionally, the final monetary policy meeting by the US Federal Open Market Committee (FOMC) will also be the key even if the Fed is less likely to offer any policy change. Traders will be more interested in seeing how the US central bank will act during 2020 considering the recent shift in data.

Ahead of the Fed, the US Consumer Price Index (CPI) for November will also be important. “We look for headline inflation to tick up two tenths to 2.0% y/y in November (0.2% m/m), mostly reflecting a gain in prices in the ex-food and energy segment. In effect, core inflation should stay unchanged at 2.3% y/y on the back of a 0.2% m/m increase,” says TD Securities.

Technical Analysis

The pair keeps the upside bias intact unless breaking 1.3100, which in turn can recall sub-1.3000 area. In doing so, 1.3200 and 1.3270 grab the spotlight.