FX.co ★ Pound chooses the Prime Minister

"Bulls" on GBP/USD for the first time in the last five weeks closed the five-day period in the green zone, but the pound cannot take it to its asset. The main reason for the growth of the pair was the increased likelihood of a reduction in the federal funds rate in 2019 after disappointing statistics on US employment. Non-farm payrolls rose by more than a modest 75 thousand, the average salary slowed from 3.4% in February to 3.1% y/y in May, which strengthened the position of "dovish" FOMC. Investors believe that the Fed considers the current situation in the context of such a phenomenon in economic theory as a demand shock when protectionism leads to a slowdown in GDP but does not accelerate inflation. In this situation, it is necessary to weaken monetary policy.

Alas, sterling is not able to take full advantage of the weakness of its opponent due to the political factor. No matter how strong the macroeconomic indicators of Britain are, the Bank of England will not raise the repo rate due to uncertainty about Brexit. On the contrary, the deterioration of statistics becomes a catalyst for GBP/USD sales. The economy of Albion is not much different from other developed countries: only a strong position in the service sector can keep it afloat, while industrial problems are associated with weak external demand. Its negative dynamics, according to Bloomberg Economics, could lead to a slowdown in British GDP from 0.5% to 0.2% q/q in the second quarter.

The dynamics of business activity in Britain

If the political landscape begins to improve, then, according to the median forecast of 60 Reuters experts, the pound will cost $1.3 and $1.34 in 6 and 12 months. On the contrary, a divorce from the EU without a deal will lead to a drop in the GBP/USD quotation to 1.15-1.2 within 4-5 weeks. In this respect, for fans of sterling, it is imperative that the authorities do not come as supporters of Brexit, in the person of former Minister of Foreign Affairs Boris Johnson or the ex-Secretary of Brexit Dominic Raab. Both of them are not averse to seeing Britain's disorderly exit from the European Union. Johnson intends to raise the minimum income, in which the income tax is paid at a rate of 40%, from £ 50,000 to £ 80,000. In addition, Bloomberg experts believe that you should not exaggerate. The GBP/USD pair will most likely collapse to 1.24 in case Brexit supporters become head of the Cabinet of Ministers but then begins to recover, as the Parliament will not allow political chaos in the country.

Along with the struggle for the post of Prime Minister, sterling must pass the test release of data on the UK labor market. Until now, it has been a bright spot on the map of the economy, but if the employment situation begins to deteriorate, the pound will lose important support.

Technically, after reaching the convergence zone identified by the Shark and AB=CD patterns near the mark of 1.26, a natural rollback occurred. If the "bulls" on GBP/USD manage to return the quotes to the neckline of the "head and shoulders" model and storm the resistance by 1.276, the risks of the development of the correction will increase.