Hung parliament fears and political chaos sink pound

The political turmoil generated by Britain's General Election showed no sign of cooling down and sank the pound even lower in the first session of the week, amid growing doubts over the future of Theresa May's premiership.

Having plunged to a six-week low against the dollar on Friday (9 June) as the prospect of a hung parliament became reality, by mid-afternoon on Monday sterling had extended its losses. The UK currency was 0.58% and 0.64% lower against the dollar and the euro respectively, fetching $1.2666 and €1.1284.

"The pound should remain under the spotlight not just today but throughout the week amid ongoing uncertainty about the political landscape in the UK [...] and ahead of key UK economic data and the Bank of England meeting," said Fawad Razaqzada, market analyst at Forex.com.

The Conservative leader failed to secure an overall majority and saw her leadership substantially undermined. Over the weekend, Nick Timothy and FIona Hill, May's chief-of-staffs, were forced to quit Downing Street after a cohort of senior Tory MPs told the prime minister to sack the duo or face a leadership challenge.

On Monday, reports emerged suggesting the government had opted to delay the Queen's Speech - during which it sets out its legislative programme - by a few days, as the Tories continue to negotiate with Northern Ireland's Democratic Unionist Party to ensure support for their minority government.

Brexit negotiations are scheduled to begin next week as Britain kicks off the two-year process that will take it out of the 28-country bloc by March 2019. However, that timeline now looks optimistic after May's unexpected electoral debacle last week.

The result of the election has weakened May's position, both within her own party and in the eyes of Brussels, while simultaneously emboldening Tory MPs who favoured a so-called "soft Brexit" approach.

"There is a viewpoint that the pound should remain supported over the near-term despite the uncertainty, due to the likelihood that the forming of a coalition government would encourage May to cool it down when it came to her previous hardline approach towards the EU and the imminent Brexit negotiations," said FXTM vice president of market research, Jameel Ahmad.

"The possibility May will be left with no choice but to adopt a diplomatic approach towards Brexit is what has been seen as the most supportive factor for the pound over the near-term. It's not something that I am buying into however, and I think this might be a short-lived consolidation around $1.27."