CURRENCIES: Pound Slides As British Government Faces Turmoil

By Saumya Vaishampayan Features Dow Jones Newswires

Sterling falls against the yen and euro

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The British pound dropped Monday after weekend news reports that several members of Parliament want Prime Minister Theresa May to resign, the latest sign of turmoil in the British government.

Sterling declined almost 0.8% against the U.S. dollar to $1.3092. The pound has advanced 6.4% against the dollar this year but remains down about 12% since the U.K. voted to leave the European Union in June 2016.

The pound fell 0.3% against the euro to EUR1.1246, after being down as much as 0.5%, and lost 0.9% against the yen on Monday. Meanwhile, the euro was down 0.2% against the dollar.

The Sunday Times reported over the weekend (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwjJwKegh7vXAhVD2KQKHX25AqkQqUMILDAB&url=https%3A%2F%2Fwww.thetimes.co.uk%2Farticle%2Ftory-turmoil-as-40-mps-say-may-must-go-kkg3w6l89&usg=AOvVaw0P3ydYgZ0X_1ThNri40pNZ) that 40 lawmakers had agreed to sign a letter of no confidence in May. Just eight more MPs are required to start a formal leadership challenge, according to the report.

Analysts say political developments are likely to be the most important factor guiding the pound in the coming months, given the Bank of England's cautious outlook on interest rates. The central bank penciled in just two more quarter-point increases by the end of 2020 as it raised its benchmark interest rate for the first time in a decade earlier in November.

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"Brexit risks and the stability of the government have pushed to the top of the list of priorities as far [as] the FX outlook is concerned," analysts at Macquarie Bank in Singapore wrote in a note on Monday.

May's Conservative Party, which lost its majority in Parliament in a June election, has been plagued by scandals that have led to the resignations of two ministers this month. Priti Patel, the international development secretary, resigned last week after details emerged (http://www.marketwatch.com/story/second-uk-cabinet-minister-in-a-week-resigns-in-blow-to-theresa-may-2017-11-08) about her unauthorized meetings with Israeli officials, while Defense Secretary Michael Fallon resigned earlier in November after allegations of inappropriate conduct toward women.

See:Is British leader Theresa May on her way out? Why that's the fear -- and why it matters (http://www.marketwatch.com/story/is-british-leader-theresa-may-on-her-way-out-why-thats-the-fear-and-why-it-matters-2017-11-09)

The U.K. is also facing growing pressure from Europe about its plans to leave the EU, which is scheduled for March 2019. On Friday, the EU's chief Brexit negotiator gave the U.K. a two-week deadline to show that sufficient progress has been made on a trio of divorce issues for talks to move forward.

European leaders including German Chancellor Angela Merkel and French President Emmanuel Macron are set to decide at a December gathering whether to authorize negotiators to proceed with discussing the U.K.'s future economic ties to the bloc.

Read:Brexit hardliners are selling England by the pound (http://www.marketwatch.com/story/brexit-hardliners-are-selling-england-by-the-pound-2017-11-09)

(END) Dow Jones Newswires

November 13, 2017 02:56 ET (07:56 GMT)