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Tim Riddell, Research Analyst at Westpac, suggests that although Brexit politics are the dominant feature in UK, the Parliamentary recess will reduce risk of an imminent leadership challenge.

Key Quotes

“Critical will be the responses of both EU and regional Tory delegates to the selling of the latest Brexit (exit) proposals and May’s visions of UK relationships with EU post-Brexit. If the responses are positive, May’s leadership will strengthen as will the potential for productive negotiations. Both will provide some welcome confidence for GBP and allow both GBP and domestic markets to rebound.”

“Despite Brexit risks, Carney and other MPC members have indicated more positive views of the UK economy. Despite some softness in inflation and sales data last week, the prospects for a 25bps hike next week is around 70%. GBP should therefore react more to improved confidence.”

“Although positive responses to the recent white papers should allow for some sound rebounds, the background of internal political tensions should cap GBP/USD towards the 1.35-1.37 upper bounds its range.”