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Pound remains under pressure amid political uncertainty Pound remains under pressure amid political uncertainty
(35 minutes later)
The pound has resumed its downward slide as investors continue to react to the political uncertainty following last week's shock UK election result.The pound has resumed its downward slide as investors continue to react to the political uncertainty following last week's shock UK election result.
Sterling had stabilised in early trade, but by early afternoon had dropped 0.6% against the dollar to $1.2672 and fell 0.7% against the euro to 1.1302 euros.Sterling had stabilised in early trade, but by early afternoon had dropped 0.6% against the dollar to $1.2672 and fell 0.7% against the euro to 1.1302 euros.
On the stock market, the FTSE 100 index was down 0.1% at 7,522.25.On the stock market, the FTSE 100 index was down 0.1% at 7,522.25.
On Friday, the pound suffered its biggest one-day drop in about eight months following the election.On Friday, the pound suffered its biggest one-day drop in about eight months following the election.
One analyst said Monday's fall was triggered in part by a report from rating agency Moody's which said the inconclusive election result could affect the UK's credit rating.
Moody's said the election would "complicate and probably delay Brexit negotiations, a credit negative".
However, it added that the government might now "consider 'softer' Brexit options, which could be credit positive".
Neil Wilson at ETX Capital said the comment from Moody's "seems to have woken traders from their slumber and the pound is on the defensive as we start the week".
The uncertainty caused by the election result has led business confidence to sink "through the floor", according to one lobby group.The uncertainty caused by the election result has led business confidence to sink "through the floor", according to one lobby group.
A snap poll of 700 members of the Institute of Directors found a "dramatic drop" in confidence following the hung parliament.A snap poll of 700 members of the Institute of Directors found a "dramatic drop" in confidence following the hung parliament.
'Up in the air'
Global currency markets are trying to work out how the election will affect the UK's exit from the European Union.Global currency markets are trying to work out how the election will affect the UK's exit from the European Union.
Negotiations with Brussels are due to begin next week, with the outcome expected to have a significant impact on the economies of both the UK and the EU.Negotiations with Brussels are due to begin next week, with the outcome expected to have a significant impact on the economies of both the UK and the EU.
Mrs May has been pushing for a so-called hard Brexit - where the UK leaves the EU single market and the customs union - instead of a softer Brexit, where the UK would maintain those links.Mrs May has been pushing for a so-called hard Brexit - where the UK leaves the EU single market and the customs union - instead of a softer Brexit, where the UK would maintain those links.
"Certainly, prolonged uncertainty would argue for a deeper correction on sterling as May's diminished Brexit mandate scenario plays out," said Stephen Innes, senior trader at Oanda. 'Up in the air'
"However, there are cooler heads in play suspecting the only real option left is the more market-friendly outcome where the UK adopts a European Economic Area-styled agreement. So, expect markets to struggle in the vortex of near-term possibilities clashing with longer-term probabilities." A report from rating agency Moody's released on Monday said the inconclusive election result could affect the UK's credit rating.
Moody's said the election would "complicate and probably delay Brexit negotiations, a credit negative".
However, it added that the government might now "consider 'softer' Brexit options, which could be credit positive".
Kathleen Brooks, research director at City Index, said the future direction of the pound was "still very much up in the air".Kathleen Brooks, research director at City Index, said the future direction of the pound was "still very much up in the air".
"The prospect of a hard split with the EU has been kryptonite for the pound, so a potential rethink on the UK government's Brexit stance could limit [the pound's] downside, at least for now."The prospect of a hard split with the EU has been kryptonite for the pound, so a potential rethink on the UK government's Brexit stance could limit [the pound's] downside, at least for now.
"However, not even the rising odds of a soft Brexit have been enough to spark positive momentum for the pound.""However, not even the rising odds of a soft Brexit have been enough to spark positive momentum for the pound."