GBP bulls bet on a soft Brexit - Rabobank

"For GBP bulls the fact that May remains in office is also reassuring because it means that she has not given way to a Brexiteer such as Gove or Johnson," note Rabobank analysts.

Key quotes

"May is considered less likely to allow the country to edge towards a hard Brexit. Investors have been taking comfort from the fact that there appears to be no real will for a hard Brexit. That said, May’s options are still painfully limited. She may be able to raise cross party support for a plan that would keep the UK within the customs unions, since the Labour party have already endorsed this plan."

"This would solve the Northern Ireland border issue. However, hard-line Brexiteers in her own party see the ability to make independent trade deals as the jewel in the Brexit crown. Since this would be impossible if membership of the customs union was maintained, pursuing this route would risk splitting the Conservative party in two. Indeed, press reports already suggest that May has promised Brexiteers that she will not agree to keep the UK within the customs union."

"Regarding the prospect of a second referendum, the fact that opinion polls have been indicting a widening bias in favour of ‘Remain’ has also been lending support to the pound. A YouGov poll conducted on January 16 suggested that the ‘Remain’ camp would win by a 12 ppt margin - the widest since the June 2016 referendum. That said it is unclear whether or not there would be parliamentary support for this option. Neither May or Corbyn are in favour and MPs whose constituents favoured ‘Leave’ in the 2016 referendum may not back another vote. Press reports have suggested that Corbyn could face resignations of up to a dozen front benchers if the party were to back a second referendum."