Tim Riddell, Research Analyst at Westpac, suggests that it is clear that a weekend is now a long time in UK politics and alternative outcomes could trigger very different prospects for GBP.
“Despite apparently gaining support for her Brexit plan, PM May is deeply wounded and at risk of a leadership challenge at any time. Brexit hardliners might not only trigger her downfall but also an election that could even result in a Corbyn-led coalition.”
“Either a hard Brexit or the prospect of a Corbyn victory would drive GBP lower. If May can ride out this week, prospects of a softer Brexit and extended transition period would rise and lift GBP. This latter scenario currently appears more likely, but risks of further attacks on May should limit GBP’s upside.”
“Outside of politics, the vulnerable economy is benefiting from the World Cup effect and better weather. If it were not for political risks, potential for the long-awaited BoE hike on 2nd August would be high and lift GBP. However, GBP/USD rebounds are likely to struggle in front of 1.3500 within a risk-driven potential 1.28-1.37 range.”
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