The pound fell to a two-year low as a political backdrop added to uncertainty in an already tense economy.
On Monday afternoon, the British pound fell to US$1.1867 – its lowest level since March 2020. Just before 5pm, it rose slightly to US$1.19.
It comes days after Boris Johnson resigned as prime minister and as the race to replace him begins.
The political situation is adding to the UK’s dismal economic outlook – inflation, recession risk, Brexit, and cost-of-living pressures have taken a toll.
At the same time, this week’s key US inflation data sent the dollar up sharply as investors looked for low-risk currencies.
Against the euro, the pound fell slightly to 84.80p.
Rabobank strategists said it was not yet known whether Mr Johnson’s resignation would be enough to create economic “coherence”.
They said in a note: “While sterling investors will be hoping for a government that is less distracted by scandal and more focused on providing coherence around the post-economy. Brexit, the jury is still out.”
“The pound may be lacking new direction until a new prime minister arrives.”
This week will see the latest UK monthly GDP figures released and these numbers are expected to show no growth in May, further reinforcing concerns that second-quarter data will show see an economic decline.
