GBP/USD: The pair trades upwards this week - DBS

GBP/USD rallied by 0.9% to 1.2760 yesterday from 1.2645 last Friday. Markets have warmed to the idea of the opposition Labour Party's landslide victory. GBP was the only DXY component that appreciated (by 0.2% YTD) this year, DBS Senior FX Strategist Philip Wee notes.

GBP is the only positive DXY component this year

"Apart from a weaker USD, markets have warmed to the idea of the opposition Labour Party's landslide victory ending years of political and economic uncertainty under the Conservative Party following the 2016 Brexit Referendum. Labour leader Keir Starmer ruled out the UK rejoining the three blocs - the EU, the single market, or the customs union - within his lifetime."

"However, Labour may seek better trading arrangements by signing up to EU rules in specific sectors such as agriculture, food and chemicals. On monetary policy, the OIS market is pricing a 62.4% chance of the Bank of England lowering its bank rate by 25 bps to 5% at its meeting on August 1.

"This may not hurt GBP much if the USD gets dragged lower by this month's US jobs and inflation data fuelling expectations for a Fed cut in September. By the way, GBP was the only DXY component that appreciated (by 0.2% YTD) this year."