After cancelling her crunch Brexit vote, which was due to take place yesterday, fears are now growing that Theresa May could be kicked out of Downing Street.
The uncertainty had lead to a further battering of the Pound – early this morning, £1 would get you $1.24.
That was a 1.6 per cent drop from $1.26 yesterday morning and a 3 per cent crash from a high this week of $1.279.
It's since recovered slightly to $1.25 after Theresa May promised to fight the political leadership battle.
But even at $1.25 that's still a 20-month low for the Pound against the Dollar – it hasn't dropped to this level since April 2017.
When it comes to the Euro, £1 would get you 1.106 Euro at the time of writing – up from 1.103 Euro earlier this morning.
But that's still down compared to 1.11 Euro yesterday morning and a high over the past seven days of 1.2 Euros.
The Pound hasn't been this low against the Euro since August 2018.
Ian Strafford-Taylor, chief executive of currency firm FairFX said: “Compared to this time last year, the Pound is down 3 per cent against the Euro and down 6 per cent against the US Dollar.
"In the days and weeks to follow, whatever the outcome of this evening’s vote, it’s likely that the Pound will continue to be impacted.”
Mr Strafford-Taylor adds that political stability is "one the biggest causes of volatility for currency" – a sentiment that Andy Scott, associate director at independent financial risk management consultancy JCRA echoes.
He said: “Sterling has seen some further large swings this morning, following confirmation that Theresa May will face a leadership challenge.
"Yesterday Sterling dropped to a fresh 20-month low of 1.2475 versus the Dollar, following reports of the threshold for a leadership challenge being reached."
Michael Brown, senior analyst at currency exchange firm Caxton FX, also believes the pound is set to remain under pressure until the result of the leadership vote is announced.
He said: "The situation remains unclear at present, with the Pound set to remain under pressure in the near-term until the result of the vote is known and the impact on Brexit negotiations becomes clear.”
In comparison, the FTSE100 Index of the UK's largest companies stood at 6,836 at the time of writing – up from 6,806 at the start of the morning.
Richard Hunter, head of markets at investment platform Interactive Investor, explains that the FTSE100 tends to improve when Sterling weakens because so many companies in the FTSE make their money overseas.
This means they become more valuable if Sterling is weak. But he points out that the index is still down compared to a year ago.
He said: “The ironic resilience of the UK’s major indices given the latest stage of the Westminster drama, is largely driven by the ongoing weakness of Sterling.
"That being said, the FTSE100 remains down 11 per cent in the year to date, as many investors have fled domestic stocks for reasons starkly highlighted by today’s events.”
Laith Khalaf, senior analyst at financial provider Hargreaves Lansdown added: “Market reaction to the Conservative leadership challenge has been relatively muted.
"This suggests there is some measure of Brexit fatigue in place, and that political turmoil is largely priced in.
"The pound and the share prices of companies plugged into the UK economy were already under pressure, and there comes a point when yet more bad Brexit news is water off a duck’s back."
But he adds that volatility is likely to continue. "We can expect markets to remain febrile while this current bout of political infighting plays out, with the pound and UK domestic companies playing the leading roles.”
Check out our explainers for more information on the Pound to Euro exchange rate and on the Pound to Dollar exchange rate.
We've also put together a guide on what a vote of no confidence leadership challenge means for Prime Minister Theresa May.
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