Pound Slumps After U.K. Election
The British pound slumped after the U.K. election on Friday after Prime Minister Theresa May failed to secure a majority, setting the stage for a potential clash at Westminster.
The BBC projects that the Tories landed 318 seats in the House, which is short of a majority and well back of the party’s performance in 2015. However, Prime Minister May appears to have struck a deal with the Democratic Unionists, which will allow her to form a government, according to various sources. Mrs. May is expected to visit the Queen on Friday to confirm that she is indeed able to form the government.
The British pound slumped over 250 pips after it became clear that the Tories wouldn’t form a majority. The outcome of the election was a major blow to the prime minister, who called for an early vote to strengthen her mandate in upcoming Brexit negotiations with Brussels.
In terms of economic data, UK manufacturing production rose much less than expected in April, raising red flags about the health of the economy. Manufacturing output rose 0.2% in April, but was flat on a year-over-year basis, data from the Office for National Statistics showed Friday. Analysts in a median estimate called for a 0.9% advance.
Industrial production, which is a broader measure of factory output, rose just 0.2% on month but was down 0.8% compared to year-ago levels. Analysts expected a 0.8% monthly increase.
The US dollar strengthened against a basket of world currencies on Friday and was on track for multi-week highs.
Meanwhile, oil prices were little changed through the early morning session after facing heavy losses earlier in the week.
The British pound experienced its biggest flash crash of the year following the UK election result. Prices were last down over 200 pips at 1.2737. A continued loss of momentum could expose the 1.2580 region, which aligns with the 200-day simple moving average (SMA).
The euro has broken to the downside in the latter half of the week following a dovish policy statement from the European Central Bank (ECB). The pair faces immediate support at 1.1118. On the opposite side of the ledger, the major resistance zone remains 1.1285, which is the high from 2 June. The EUR/USD failed to extend gains beyond this level, which ultimately limited its upward momentum.
US West Texas Intermediate (WTI) was last seen trading at $45.75 a barrel, up around 11 cents from the previous close. The contract is in a steep downtrend after a US government report on Wednesday showed an unexpected build in commercial crude inventories. Crude prices face a negative short-term outlook. Traders should therefore carefully monitor the swing low from early May. Any break below that level could expose WTI to steeper losses.