Pound Sterling appreciates as exit polls predict a landslide victory for the Labour Party

• The Pound Sterling strengthens as UK election results are being declared, anticipating a decisive victory for Keir Starmer's Labour Party.
• UK exit polls predict the Labour Party will win 410 seats in the 650-seat House of Commons.
• The forecast for US Nonfarm Payrolls suggests an increase of 190,000 new jobs, down from the previous reading of 272,000.

The Pound Sterling (GBP) continues its winning streak on Friday. As UK election results are being declared, exit polls predict a landslide victory for Keir Starmer's Labour Party, expected to win 410 seats in the 650-seat House of Commons, while the Conservatives are projected to secure 131 seats. The outcome of the election should be clear by early Friday.

Derek Halpenny, head of FX research at MUFG Bank Ltd., suggests that a Labour landslide could be advantageous for the Pound Sterling. A substantial majority would grant Labour a strong mandate for governance, potentially leading to greater political stability.

Read More: How could the UK general election impact the Pound Sterling?

The US Dollar (USD) struggles due to softer US data, fueling speculation that the Federal Reserve (Fed) might reduce interest rates in 2024. The key highlight on Friday will be the release of US employment reports, which are expected to show a slowdown in employment growth in June. The US Nonfarm Payrolls (NFP) are expected to show an increase of 190,000 new jobs, down from the previous reading of 272,000.

Daily Digest Market Movers: Pound Sterling rises as US data raise odds of Fed rate cuts

• The ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.
• US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May.
• Federal Reserve Bank of Chicago President Austan Goolsbee stated on BBC Radio on Wednesday that bringing inflation back to 2% will take time and that more economic data are needed. However, on Tuesday, Fed Chair Jerome Powell said that the central bank is getting back on the disinflationary path, per Reuters.
• The Minutes from the Federal Reserve's June 11-12 monetary policy meeting, released on Wednesday, suggested that Fed officials were in a wait-and-see mode. Some participants emphasized the Committee’s data-dependent approach, with monetary policy decisions being conditional on the evolution of the economy rather than being on a preset path.
• The Pound Sterling (GBP) continues to gain ground as BoE policymakers remain concerned about persistent inflation in the UK service sector, preventing them from considering policy easing. In contrast, inflation in other sectors has significantly declined due to weak demand from both domestic and overseas markets.

Technical Analysis: Pound Sterling holds position around 1.2750

The GBP/USD pair trades around 1.2760 on Friday. The analysis of the daily chart indicates a bearish bias, with the pair consolidating within a descending channel. However, the 14-day Relative Strength Index (RSI) is above the 50 level, suggesting that any further increase could weaken the bearish outlook.

The GBP/USD pair may challenge the upper boundary of the descending channel near the 1.2780 level. A breakthrough above this level could potentially push the pair to test the June high around 1.2860.

On the downside, a significant support level is noted at the 21-day Exponential Moving Average (EMA) at 1.2701. If this level is breached, it may exert downward pressure on the GBP/USD pair toward the vicinity of the lower boundary of the descending channel, approximately around 1.2612.

GBP/USD: Daily Chart