By Saikat Chatterjee and Joice Alves
LONDON (Reuters) -Sterling fell to near three-week lows on Tuesday as the weakness of British Prime Minister Boris Johnson’s position unnerved investors, while a broader rise in the U.S.
dollar also weighed on sentiment.
Sterling had recovered some ground on Monday after Johnson won a confidence vote 211 to 148, but his 59% share of the vote was less than the 63% achieved by his predecessor Theresa May in her confidence vote of December 2018, and she was replaced seven months later.
In early London trading on Tuesday, the British currency fell 0.73% to its lowest level since May 19 at $1.2433.
It was down 0.1% at $1.2519 at 0808 GMT.
Against the euro, the pound weakened by 0.1% to 85.44 pence.
“The relief rally that lifted sterling yesterday was built around the hope that the confidence vote could draw a line under political distractions and allow the government to get on with the job in hand,” said Jane Foley, head of FX strategy at Rabobank in London.
“Instead, the scale of the rebellion will ensure a cloud remains over Johnson’s future.
This suggests that political distractions remain in place and his leadership could again be tested ahead of the 2024 general election,” she added.
The currency has fallen 7.5% against a resurgent dollar this year, weighed down by Britain’s dismal growth outlook, which is casting doubt on the trajectory for interest rate rises by the Bank of England.
Reflecting the greater political uncertainty, expected swings in the British pound over a one-week and one-month period edged higher.
“The PM has survived the no confidence vote, but the number of Conservatives MPs who voted against him is substantial enough to weaken his position further,” said Frederique Carrier, head of investment strategy for the British Isles and Asia at RBC Wealth Management.
(Reporting by Saikat Chatterjee and Joice Alves; Editing by Bradley Perrett and Emelia Sithole-Matarise)
