Forex markets: Brace for news-driven Mega-Friday
This Friday could see considerable volatility for USD and GBP with Non-Farm Payrolls due to be released on that day along with results from the UK general election, which are likely to see a hung parliament.
Non-Farm Payrolls have been running at over 200,000 a month for over a year and then the March figure came in at 126,000 to the surprise of some market participants. Expectations over the first US interest rate rise were promptly put back, which has helped stall USD's rally.
The April figure will therefore be carefully scrutinised to see if the March number was a one-off or reflects a definite slowdown in the pace of US economic expansion and jobs creation. In the run-up to the release USD crosses are likely to crawl to a halt with an explosion of volatility when the data is out
For GBP it's likely to be a slightly different story with the crosses likely to remain busy. The election to be held on May 7 will see ballot boxes close at 10PM that day UK time with the first constituency expected to declared at 11PM on the same day.
GBP/USD – waiting for a cliff hanger
Next week UK political landscape could completely change
There will be a steady flow of results coming through from the various constituencies during the late US trading session through to the Asian one continuing into the European time zone.
Though there are widespread expectations for a hung parliament – that is no party will be big enough to rule on its own leading to another coalition or a minority government. Despite the complex dynamics of this election and uncertainty over what will follow it – the forex markets have been remarkably sanguine.
However, the forex markets, on the GBP crosses, will be following the results closely in a bid to anticipate who will eventually run the country. During an election there are always some surprise winners and losers, which could drive volatility in the exchange rate in the run up to the final tally.
Over the weekend and into next week haggling is likely to begin among the parties so a government can be formed. For the markets the ideal outcome is a return of the Conservative Liberal Democratic coalition. So far political betting sites see a Labour government supported by the Scottish National Party as being the most likely outcome despite strong denials by the former that it will work with the latter.
If the ruling Conservative-Liberal Democratic coalition or even a stand-alone Conservative or Labour government were to win the election, implying political stability, GBP/USD could soar to 1.5800-1.6000. On the other hand a messy result followed by dysfunctional government with the prospect of another uncertain election could see GBP/USD sink to 1.4500-1.4800. Otherwise if the election result is more or less as the markets expect with an SNP-supported Labour government the pair could stay roughly where they are now.
By Justin Pugsley, Markets Analyst, MahiFX