Societe Generale’s team highlights that GBP/USD has edged higher, helped by lower Oil prices, risk correlations and Asian FX intervention-driven US Dollar (USD) selling. However, they stress that UK local elections and seasonal patterns pose downside risks. Short positioning in the Pound and less tight correlation with UK 10-year Gilts are also noted as important context for the pair.

Cable lifted but downside risks linger

"In the UK, it’s Mayday for PM Keir Starmer and what looks like will be a devastating election defeat for the Labour Party could precipitate a leadership challenge. PM Starmer will reportedly count on reversing Brexit to save his premiership if the results go against him."

"In a speech planned for next Monday and designed to fend off a possible leadership challenge, the PM will say that closer relations with the EU are “crucial” to tackling the cost of living crisis caused by the Iran war as he seeks after today's elections."

"According to the Times, there will be a commitment to closer relations with the EU to bolster Britain’s economic and national security."

"GBP positioning is short but USD selling (Japanese/Asia intervention) and correlation with risk is flattering levels in cable above 1.36."

"The correlation with 10y gilt is not as compelling as it was last November (budget) or in September2022 (PM Truss). EUR/GBP trades not far off 4-month lows."

"Cable gains flattered by lower oil, correlation with risk and Asia FX intervention. Local elections today and May seasonality are downside risk. Support 1.3450, resistance 1.3730."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)