The Pound Falls against Dollar and Euro over governmental instability.

The pound has fallen this morning as pressure mounts on prime minister Theresa May over Britain's exit from the EU. Talks from both Micheal Barnier and Brexitiers in the cabinet have lead to a shock for the British market. 

Sterling has lost almost a cent this morning, to below $1.31. This follows yesterday's report in the Sunday Times that 40 Conservative members of Parliament have agreed to sign a letter of no confidence in Theresa May.

Forty eight is the number needed to launch a leadership challenge, creating new worries in the City and beyond about the stability of the UK government.

In another significant move, foreign secretary Boris Johnson and environment secretary Michael Gove have written a letter to May complaining that “some parts of Government” aren’t doing enough to prepare for a hard Brexit.

This letter, which leaked over the weekend, appears to be an attempt to undermine chancellor Philip Hammond (as he puts the finishing touches to next week’s budget).

One minister has described the move as “Orwellian”, suggesting that the cabinet is badly split as MPs return to parliament to debate the Brexit bill.

Rajeev Syal and Jon Henley reported in the Guardian that :

'Another minister said' “I doubt they thought this would ever come out. It stinks to high heaven. May will have to dress them down or look weak.”

“I can’t believe this has come out. This is exactly the kind of arm-twisting by Brexiters one expects to go on behind the scenes, but the fact that it is in the public and is being inflicted upon the prime minister is remarkable.”

Kathleen Brooks of City index writes: 

'Firstly, today’s move tells us that the markets are on alert for political risks emanating out of the UK, and if there is a party coup to replace Theresa May then political turbulence is likely to weigh on the pound further.

Secondly, even though the pound has had a jolty start to the week, volatility and technical signals do not suggest to us that the pound is about to fall off a cliff just yet, we may need this story to develop further to get another big move lower in sterling. 

Thirdly, don’t get too complacent about the pound, the political and Brexit situations remain fluid and can throw up surprises. In future, when volatility is low in the pound investors should be on their guard that a pullback is likely. '

Source: Guardian/ City Index