Sterling weakens further as government stance on softer Brexit comes into question

Sterling has suffered further weakness at the start of this week as investors react to the government’s attempts to outline its Brexit stance after a disastrous election for Prime Minister Theresa May.

The pound lost as much as a cent against the US dollar to fall below $1.266, approaching the seven-week lows reached early on Friday morning.

Meanwhile the euro briefly reached its strongest spot exchange rate against the pound since early November, at €0.8867. The euro has also been buoyed by the strong majority expected for the party of French President Emmanuel Macron after the first round of parliamentary elections yesterday.

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Sterling plummeted on Thursday night when the General Election exit poll predicted a hung parliament, with investors fleeing a shock political outcome which threatened to unseat May.

However, May looks set to be sustained by a confidence and supply agreement with Northern Ireland’s Democratic Unionist party (DUP), which will provide the votes needed to function.

Since then, further falls in the pound have been driven by infighting in the Tory ranks as May clings on to power, as well as comments by Brexit secretary David Davis who said the UK is committed to leaving the Single Market.

However, investors should be “sceptical” of talk of an immediate move to a softer Brexit stance, according to Jordan Rochester, a currency analyst at Nomura.

Read more: City senses a softer Brexit after Theresa May’s election flop

He said: “Overall we continue to judge that the risks are now more tilted to the downside for the pound in the near term on the back of heightened political uncertainty and the potential for even more complicated Brexit negotiations.

“We would need to see the emergence of concrete evidence of a shift to a softer Brexit stance to buy into the potentially more bullish outlook for the pound.”