GBP/USD Forecast: Time to buy? May won and now she can turn her back on Brexiteers

• UK PM May repeated her message that no Brexit deal is better than a bad deal.
• She staved off the rebellion and had the mandate to change her policy.
• The GBP/USD is still on the back foot, but this can change.

UK Prime Minister Theresa May delivered a successful speech in Birmingham. Contrary to the mishaps in the previous Conservative Conference, the PM came on top. She delivered an impressive call for unity in a statement that touched on many aspects.

Markets care about Brexit, and they did not hear the desired message. May repeated her stance that no-deal is better than a bad deal and that Britain is not afraid to leave the EU without an agreement. 

Markets also did not like what she did not say. The leader did not offer any compromises on the Irish border, the thorniest sticking point in the negotiations with the EU. The lack of any groundbreaking news sent the Pound slightly lower in a knee-jerk reaction.

Rebellion crushed

There was another thing that did not happen at the four-day annual event. There was no serious rebellion. Former Foreign Minister Boris Johnson delivered a highly-anticipated speech at a fringe event on Tuesday. After putting up a good show and criticizing May's Chequers proposal, the leading contender ended his discourse by calling members to support the PM.

Is Johnson laying the ground for a mutiny later on if May moves on with her plan? Perhaps. Yet there is an easier explanation of his behavior. He just does not command enough support among the Members of Parliament to dethrone her. 

Just an hour before May took to the stage, a backbench MP in her party called for a no-confidence vote against her. James Duddridge sent an official letter to the 1922 Committee. However, he was not backed by anybody else.

All in all, even without the successful speech, May came out on top.

She now has more maneuvering power within her party. 

Next up: a climbdown?

After settling the score with her rivals, May can push forward with a desire to make Brexit a success. What would consist of a victory? Hard-Brexiteers would say a "clean" exit from the EU. However, this would inflict significant economic wounds on the economy and voters will be angry.

May can go for a different path. As reported earlier, the UK government may be willing to offer concessions on the Irish question and allow for Northern Ireland to have a special status be regulatorily aligned to the Republic of Ireland. In other words, there would be no border in the Isle of Ireland, but there would be a border in the Irish Sea.

A situation where Northern Ireland drifts away from the rest of the UK is what May advocated against. Also, it would fatally wound the alliance with the Northern Irish DUP party on which her Conservatives rely. Nevertheless, it would deliver a relatively hard Brexit that would muster support from the opposition parties.

There is another option. With time running out, she can pick an off-the-shelf model from the European supermarket and market it as a temporary one. The Norwegian model gives the UK no say in any EU decisions but fundamentally keeps the current arrangement intact, avoiding any economic damage. It could be agreed for five years after which the UK will decide again. Such a solution would anger the hard-Brexiteers but not the DUP. It would also receive broad support from the opposition and would be easier to implement. 

GBP/USD has room to run

Both scenarios are favorable for the economy. At the moment, a Brexit deal is not priced in, so any path to an agreement and removal of the no-deal scenario would be a boon for Sterling.

The GBP/USD could shoot higher on any such development. A move of several big figures cannot be ruled out.

How high is the probability of a climbdown? It is hard to know. May may still dig in on a hard Brexit, and the UK could "fall off a cliff" on March 29th, 2019. However, the rhetoric has been high, and the government climbed down on several issues such as the divorce bill and the jurisdiction of the European Court of Justice.

All in all, reaching an accord that will not destroy the economy has higher chances than earlier.

Conclusion

UK PM May came out victorious from the Conservative Conference after delivering an upbeat speech and crushing the rebellion. She has more room to offer a considerable compromise that may result in a Brexit deal that is favorable for the economy and will be supported by the opposition. The GBP/USD does not price in a deal and has room to rise.