GBP/USD bears stay in control as traders ramp up Fed bets

• GBP/USD is suffering in the hands of a firm US dollar and UK political uncertainties. 
• Traders have ramped up bets that the U.S. central bank could raise rates by 100 basis points.

GBP/USD is trading down on the day by some 0.7% at the time of writing with the pair falling from a high of 1.1892 to a low of 1.1759. The US dollar resumed its relentless move higher on Thursday, charting new 24-year highs in the DXY index that tracks the greenback against six counterparts up more than 13% this year. It was last up 0.64% on the day at 108.710. 

Markets are fixated on the Federal Reserve which is widely expected to raise the federal funds rate by 75 basis points at its July 26-27 meeting. The Consumer Price Index data for June that was released Wednesday morning surprised to the upside, coming in far stronger than expected. The Fed's Beige Book report on Wednesday afternoon also indicated that inflation remains brisk and labour markets tight, but there were signs that demand has slowed. This is concerning investors in anticipation of a recession which too is supporting the US dollar on safe-haven flows. 

As for domestic fundamentals, the pound will be subject to political uncertainties. ''The combination of slow growth, debt and high inflation is likely to provide very tricky for the new Tory leadership,'' analysts at Rabobank explained. ''Several candidates have proposed sweeping tax cuts that threaten both public finances and the inflation outlook.''

''On the other hand, if used carefully tax cuts could boost investment that would increase productivity, growth potential and tax revenue. That said, Sunak, the former Chancellor has accused the pledges of many of his rivals in the leadership race as “comforting fairy tales” and is expected to argue that his approach during his tenure was “responsible”.  The UK had been on course to see the highest tax burden in 70 years by the end of the current parliament.''