All eyes on EU's reaction to latest UK Brexit proposals.

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Yesterday’s UK data releases provided further confirmation that UK growth momentum has picked up in the second quarter, which provided some support to the pound. Comments from BoE Governor Carney today are expected to support the likelihood of an August rate hike, which would be positive for the currency. However, the upside is likely to be capped as ongoing political developments continued to provide an overall dampening influence.

All eyes on EU’s response to White Paper.

All eyes will be on the EU tomorrow for their response to the UK government's White Paper on the future trading relationship. The White Paper will detail the 'Chequers agreement' that appears to show a 'softer Brexit' that sees the UK and EU remain closely aligned, particularly when it comes to the trading of goods.

Traders and businesses gave the plan a cautious welcome and many believe Sterling would be notably higher had doubts grown over May's leadership in the wake of the cabinet resignations. If the EU rejects the White Paper, or expresses doubts, it could be taken as a sign that they will seek even more concessions from the PM May.

With Theresa May aware that she has limited room to give futher concessions, and with the government agreeing to step up plans for a no-deal Brexit, markets could become wary that the UK and EU are heading for a no-deal outcome.

Analysts are suggesting that the EU will adopt a sceptical position regarding the proposed customs arrangements but behind the scenes both sides will have to concede that they’ll need to soften their respective stances to conclude a trade agreement over the next few months.

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