Sterling holds steady after tough week but political headwinds still remain

Technical Analysis

Author: Justin Low | gbpusd

Cable trades more firm around 1.2750 currently

GBP/USD D1 20-05
Despite the minor gains being posted, it's hardly convincing of any real strength in the pound after last week's downfall. Aside from being a mere retracement, political headwinds will ensure that the pound remains offered over the next few weeks.

The race is already on for the Tory party leadership as May's time as prime minister looks to be coming to a sad end by the end of June. For now, she's promising a "bold new offer" on the withdrawal agreement bill in two weeks' time but it's time to face reality, that isn't going to happen and she won't win enough votes.

As such, we could be in store for a more prominent Brexiteer at the helm next in the form of Boris Johnson - who is the current front-runner. That raises the risks of a no-deal Brexit when push comes to shove in October. Also, regardless of who the next prime minister will be, there's every possibility that we could see early elections as well.

Whoever that is appointed will want to lay out their own mandate so we could see increased volatility and uncertainty on the domestic front (potential Labour government?) and when you put all those pieces together, it doesn't paint a pretty picture for the pound.

Given that there's still so much uncertainty still left to deal with, the path of less resistance is still for a weaker pound currently and I would expect any decent rallies to be sold into given such circumstances.

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