POUND LIVE: Pound falls as Theresa May's future hangs in the balance and Brexit talks loom

Sterling tumbled around 0.6 per cent to 1.1311 aganinst the euro and 1.2689 against the US dollar after losing around 1.5 per cent on Friday as the UK election ended in hung parliament and Theresa May trying to form a coalition with the DUP.

The pound now remains vulnerable amid speculation that Mrs May could soon be forced to resign as Prime Minister as Conservative Party leader.

Crucially, markets are trying to work out what the UK election means for Brexit negotiations, which are scheduled to formally begin with the European Union (EU) on June 19th – in just one week.

Mrs May’s loss of a Conservative majority has raised expectations that a hard Brexit could be less likely – and that the UK may now even stay in the single market.

Kathleen Brooks, research director at City Index Direct, said: “The government is fragile, Theresa May still hasn’t secured a formal “agreement” with the DUP, she has to meet the incredibly popular Emmanuel Macron later today and she still has to pass a Queen’s Speech in Parliament next week that is necessary to give her the right to rule.

“The political risks are mounting, however, the pound remains stable after Friday’s initial sell off.

“The prospect of a hard split with the EU has been kryptonite for the pound, so a potential rethink on the UK government’s Brexit stance could limit GBP downside, at least for now.

“However, not even the rising odds of a soft Brexit have been enough to spark positive momentum for the pound.

“Sterling appears to be in a holding pattern, volatility remains subdued, which could limit GBP movement in the run up to the Brexit negotiations, which resume on 19th June.”

At the same time, business confidence has dived in the aftermath of the election result, according to a survey by the Institute of Directors.

The news helped push the FTSE 100 into the red when it opened on Monday morning.

Britain’s top stock index fell around 0.4 per cent to 7,496 as nerves over the political uncertainty also weighed on traders.

Michael Hewson, chief market analyst at CMC Markets UK, said: “Having had the weekend to absorb the events of last week the only questions being asked is how long Prime Minister May can last, and whether next week’s Brexit talks will start as scheduled.

“It would appear that in the interests of expediency she may well survive in the short term, but in the longer term it seems likely that she will be replaced, as soon as is practical.
 
“The reaction of the pound to recent events has unsurprisingly been negative, but thus far downside has been limited, possibly down to the fact that the form of “Brexit” as envisaged before the election is now much less likely, largely as a result of the parliamentary arithmetic.”