Investing.com - The pound came under renewed selling pressure on Monday as investors continued to digest the fallout from last week’s election which plunged the UK into political chaos with just days to go until Brexit negotiations are due to start.
GBP/USD was at 1.2665 by 08.47 AM ET, after ending Friday’s session down 1.7%, its largest one-day percentage decline in around eight months.
British Prime Minister Theresa May’s grip on power looked precarious after her party unexpectedly lost its parliamentary majority in the election on Thursday.
May is seeking a deal to form a government with support from Northern Ireland’s Democratic Unionist Party, known as the DUP, in order to stay in power.
The BBC reported Monday that Downing Street will delay the Queen's Speech, in which the government traditionally spells out its policy plans, because of the upheaval caused by the election results. The speech had been due to take place on June 19.
Rating agency Moody’s said Monday that the inconclusive election outcome has heightened uncertainty over Brexit negotiations and is ‘credit negative’ for the UK.
The shock election result has given rise to speculation that the government could soften its stance on Brexit, but is also likely to delay the start of Brexit negotiations, which were due to start on June 19.
A minority government has also increased the risk of another general election later this year and the prospect of Britain running down its two-year Brexit clock without reaching a deal in time.
Sterling fell to the lowest level since November against the firmer euro, with EUR/GBP advancing 0.95% to 0.8860.
Meanwhile, the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, dipped 0.11% to 97.12, having retreated from Friday’s two-week highs of 97.47.
Investors were turning their attention to Wednesday’s Federal Reserve policy meeting, where the central bank is widely expected to deliver its second rate hike so far this year.
With a rate hike largely priced in investors will be watching for indications on the pace of further tightening in the second half of the year and further details on the Fed’s plans for reducing its balance sheet.