Pound slips lower as May faces leadership pressure

The pound has fallen amid market jitters over increasing pressure facing Theresa May's leadership.

Sterling dropped by more than a cent against the US dollar to $1.3062 in early European trade and was also down by a cent against the euro.

It was put down to reports that 40 Conservative MPs are prepared to sign a letter of no confidence in the Prime Minister.

Mrs May also faced weekend claims that she was being held "hostage" by Boris Johnson and Michael Gove about how to deliver Brexit.

Joshua Mahony, market analyst at IG (Frankfurt: A0EARV - news) , said: "The potential for yet another political upheaval in the UK has no doubt grabbed market attention."

Kit Juckes, global fixed income strategist at Societe Generale (Swiss: 519928.SW - news) , said: "Sterling is priced for soggy (economic) growth and difficult (political) negotiations."

The pound later recovered some poise back above $1.31 but its latest wobble comes as the time frame for trying to reach the next stage of Brexit negotiations comes into sharp focus.

EU chief negotiator Michel Barnier said on Friday that the UK must clarify or concede more in the next two weeks if it wants to move on to trade talks in December.

The CBI and its counterparts from Europe's largest economies used a meeting with the Prime Minister on Monday to urge her to fight for an immediate transition deal.

The value of the pound collapsed after the vote to leave the European Union in June last year and was as low as $1.20 against the dollar earlier in 2017.

Since then it has partially recovered but the pound is still around 13% lower than just before the referendum result emerged.

A weak pound makes imports more expensive, driving up prices for consumers as well as squeezing retailers as they try to absorb some of the higher costs.

But it has a positive impact for some manufacturers as cheaper sterling means UK-made goods are more competitively priced.

Sterling's fall has also been positive for the FTSE 100, since many of the index's constituent companies earn much of their revenue in foreign currencies.

The top-flight index was ahead on Monday after the pound's latest slip but closed 17 points lower at 7415, reflecting wider market fears about stocks being over-valued.