GBP/USD pauses three-day winning streak, eyes on UK election

• GBP/USD looks for firm direction around the multi-month top.
• Recent polls show a mixed picture but Tories stay on the front, fears of hung parliament prevails.
• The election results will be the key to the future of Brexit and Conservatives’ leadership.

Following a Fed-led rally, GBP/USD bulls catch a breather around 1.3210 amid Thursday’s initial trading session. Traders now seem cautious as the United Kingdom’s (UK) general elections will begin soon.

While all of the recently released polls keep the ruling Conservative Party at the top, their receding lead over the opposition Labour Party becomes the reason to worry for the markets.

The benchmark YouGov MRP model took a step back from the previously upbeat analysis while poll results from Savanta/ComRes show worrisome signs with only five points’ lead of Tories over the Labours. Adding to the market’s concern is the recent criticism of the Prime Minister (PM) Boris Johnson over various issues ranging from the National Healthcare System (NHS) to the Northern Ireland border. Portraying the risk sentiment, the US 10-year treasury yields keep it close to the weekly low, around 1.79%.

The pair previously benefited from the US Federal Reserve (Fed) Chairman’s cautious statement signaling the absence of anticipated rate hikes in 2020.

Moving on, voting for the election will begin at 07:00 GMT and the polls will be closed by 22:00 GMT. Exit polls after 22:00 could trigger major moves due to the importance of the results. The key to watch here is the Tory majority in the parliament. If the Conservatives fail to grab more than 340 seats, doubts over their efforts on Brexit can weigh on the British pound (GBP).

Technical Analysis

A sustained break of 1.3220 can push the pair’s run-up to 1.3270 and 1.3300 whereas yearly top close to 1.3380 will be in focus afterward. On the downside, 10-day Simple Moving Average (SMA) near 1.3100 acts as near-term key support.