GBP/USD corrected to 1.3431 overnight, following its recovery from the year’s low of 1.3140 on June 24 to 1.3558 on July 15. GBP/USD was 1.3555 on May 7, after the Labour Party suffered devastating local election losses that triggered an internal party revolt against former Prime Minister Keir Starmer. Andy Burnham, who earned the nickname “King of the North” while serving as the Mayor of Greater Manchester, emerged as the frontrunner to replace Starmer. Burnham returned to Westminster after winning the parliamentary election in Makerfield on June 18 (GBP/USD: 1.3206), leading to Starmer’s resignation on June 22 (GBP/USD: 1.3251), and his uncontested ascension to 10 Downing Street on July 20 (GBP/USD: 1.3431).
Interestingly, EUR/GBP depreciated sharply to 0.85 from 0.8678 following the Makerfield by-election on June 18. Noting that Makerfield was a constituency that voted heavily to leave the EU, Burnham’s victory was attributed to his pledge not to drag the UK back into the EU despite his pro-European credentials. EUR/GBP’s decline is not a celebration of Burnham ignoring Europe, but a hope that the seventh prime minister after the Brexit Referendum is treating the EU as a settled partnership to be managed quietly.
Instead, Burnham’s “Manchesterism” policy platform will focus on rebuilding the domestic economy through devolution (shifting control from London to English regions), public infrastructure (bringing public transport, water, and energy under more public control), and economic security (cost-of-living relief and domestic growth). Burnham also represents a sharp shift from Starmer’s global diplomacy towards a foreign policy that must also justify benefits to the country’s working class.
Investors remain cautious about Gilts and the GBP. Following Burnham’s comment about exploiting any flexibility within the fiscal rules, the Gilt 10Y yield rose slightly above 5%. The 10Y yield has been in a 4.65-5.20% range, up from its February 27 low of 4.23% before the US-Iran conflict. GBP/USD fell 0.16% to 1.3431 overnight, nearer its 1.34 support level marked by its 100-day moving average. Nonetheless, markets were relieved after Burnham appointed veteran John Healey as Chancellor, a pair of safer hands than Ed Miliband’s ideological tendencies toward green spending and Shabana Mahmood’s Treasury inexperience. However, Healey’s appointment acted only as a circuit breaker to allay concerns about repeating another Liz Truss-style mini-budget crisis. However, Healey still needs to win the market’s vote of confidence with the Autumn Budget, probably in late October or November, over how he balances Burnham’s ambitious goals while maintaining fiscal credibility.
On balance, GBP/USD may have a more difficult time pushing above 1.36 again than EUR/GBP would in extending its decline to 0.83-0.84.
Quote of the Day
“Ability is what you're capable of doing. Motivation determines what you do. Attitude determines how well you do it.”
Lou Holtz
July 21 in history
The 1954 Geneva Conference temporarily divided Vietnam at the 17th parallel into two military zones.
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.