UK100 Slides to Pivotal Levels on CB & Election Uncertainty

  • UK100
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UK100 Analysis

The index is having a banner year and reached new all-time highs in mid-May, boosted by the economic recovery and the exit from recession, as well as the central bank's intention to start lowering rates. The latest inflation figures last week showed a substantial moderation to 2.3% y/y, but the print was higher than anticipated and the Bank of England expects it to pick up again in H2.

As a result, the inflation report actually dashed market hopes for a June cut, a move that Governor Bailey had not dismissed nor endorsed. This creates a highly tentative policy outlook, aggravated by the BoE's typically murky communications, while the surprise announcement of General Election for July 4 adds another level of uncertainty.

The central bank is independent, but the election could influence its decision as it would not want to be seen helping either party. The governing Conservatives are generally projected to lose the election by wide margin to the Labor party and the latest YouGov voting intention poll is at 22% vs 44% [1]. However, PM Sunak could benefit from improving economy, lower inflation and prospects of less restrictive monetary policy.

The pushback in expectations around the timing of the fist BoE cut and election uncertainty, along with technical factors have led to a UK100 pullback to pivotal levels. It tests the EMA200 and the 38.2% Fibonacci of the last leg up (form April low). Daily closes below it would pause the bullish bias and open the door to further losses toward the daily Ichimoku Cloud.

However, the BoE is still expected to lower rates this year (potentially within the summer) and the UK economy is recovering. This creates scope for renewed UK100 advance and defending the aforementioned pivotal levels strengthen chances for higher highs (8,488).

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Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 23 Jun 2024 https://yougov.co.uk/politics/articles/49531-voting-intention-con-22-lab-44-23-24-may-2024

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