If Theresa May Can Survive This…

It was the worst news day for the UK government since last year's elections as two cabinet ministers quit and yet cable finished just a quarter-cent lower. UK Foreign Secretary Boris Johnson quits his post, hours after Brexit Secretary David Davis announced his resignation. The Australian dollar was the top performer on the day while the yen lagged. Chinese CPI is due up next. The video on existing and future traders is made available for Premium subscribers.

On Friday, Boris Johnson delivered an impassioned speech in favor of May's Brexit white paper but after the resignation of David Davis he had a change of heart, perhaps not wanting to lose his reputation as a Brexit hawk, and quit cabinet.

For a time, that looked like it could be the beginning of the end for Theresa May as the difficulty of moving forward with two more rivals blocking her way came into focus. Yet reports say she received a standing ovation after a party meeting.

We have long argued that PM May us safe in her job because no one else wants the impossible job of navigating a Brexit that's sure to please no one. Instead, Davis, Johnson and others are likely angling to replace her after the deal is done. If that's correct, then this might be as bad as it gets for May.

If anything, the pound's resilience is impressive. Had PM May suffered these resignations at a different point, the losses for sterling would have surely been much deeper than the drop to 1.3200 from 1.3350. The bounce to 1.3260 late also demonstrated that buyers are lurking.

We are eager to see how the day ahead unfolds but if the bad news is out of the way, the focus may shift back to the economy and the Bank of England, which are both shifting to be modest tailwinds for the pound.

At the same time, broad sentiment improved Monday as trade tensions ebbed, at least for the moment. Chinese shares finally bounced in a 2.5% climb and that stoked a better tone elsewhere, including a rise in USD/JPY to 110.80 from 110.40.

In the hours ahead, risks will remain elevated with China June PPI and CPI due at 0130 GMT. Inflation is forecast to rise 1.9% y/y.