Sterling weakened on Monday as political turmoil around Prime Minister Keir Starmer and rising rate-cut expectations pressured the currency.
The pound slid against the euro and edged lower versus the dollar, with traders reacting to mounting political risk and a softer monetary outlook.
Pressure intensified after Starmer’s chief of staff resigned, reigniting controversy over the appointment of Peter Mandelson as U.S. ambassador.
The euro climbed 0.49% to 87.22 pence, a two-week high, while sterling dipped to around $1.3607 against the dollar.
UK government bonds slightly underperformed European peers as investors weighed the impact of political instability on fiscal and market confidence.
Last week’s finely balanced decision by the Bank of England prompted traders to increase bets on further rate cuts this year.
By contrast, the European Central Bank is expected to keep rates steady, reducing the pound’s appeal against the euro.
ING strategist Chris Turner said sterling and gilts remain under pressure, citing dovish signals from the BoE and uncertainty at the heart of government.
