LONDON (Reuters) – The pound rose above $ 1.29 on Thursday after support for British Prime Minister Theresa May from her conservative party had dampened fears of an immediate leadership challenge over her Brexit strategy.
FILE PHOTO: British five-pound banknotes.November 14, 2017. REUTERS / Benoit Tessier / Archiv photo
The prospect that politics will bring down a divorce treaty between the United Kingdom and the European Union has been pound sterling in the Weakened in recent days The currency sank against the dollar to a seven-week low.
The lack of voices that openly disagreed with May when she approached Conservative MPs on Wednesday evening hampered speculation that she might soon be overthrown.
However, investors said that with just five months to leave the UK, the chances of Brexit failing to reach an agreement and thus the prospect of further sterling losses would increase.
"Domestic policies have flared up again and the cumbersome momentum will make it difficult for them to reach agreement on the British Parliament in May," said Alexandra Dumitru, an economist with Rabobank.
"We still hold a last-minute deal for the most likely outcome, but due to recent events, we now estimate the odds of a" hard Brexit "almost as high as the base case."
Disagreement over a fallback plan for the border between the British province of Northern Ireland and the EU Member State Ireland is the main point of the Brexit talks.
"If May were overthrown, the pound would see a sell-off in the short term because its replacement could increase the chances of a no-deal Brexit," said David Cheetham, lead market analyst with broker XTB.
But the pound remains more sensitive to good news than bad, which could mean a pretty sharp upward move should a [Brexit] deal be reached.
On Tuesday, the pound gained half a percent against the dollar and euro A media report that the EU may offer a UK-wide customs union in May to reach a Brexit deal.
Reporting by Tom Finn; Edited by Mark Heinrich