The selloff in the pound paused on Monday as British Prime Minister Theresa May’s grip on power looked precarious after her party unexpectedly lost its parliamentary majority in an election that could disrupt Brexit negotiations.
GBP/USD was at 1.2742 by 07.47 AM GMT after ending Friday’s session down 1.7%, its largest one-day percentage decline in around eight months.
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 after no single party won a clear majority in the UK election on Thursday.
The political impasse sparked uncertainty over how the government’s position on Brexit talks may change with only a week to go before the talks are due to begin.
The euro pushed higher against the dollar and sterling, with EUR/USD rising 0.19% to 1.1217. EUR/GBP added 0.36% to trade at 0.8810.
The euro showed little reaction after polls on Sunday showed that French President Emmanuel Macron’s party is set for a giant majority in parliament after a first round of voting, in line with forecasts.
The dollar was a touch lower against the yen, with USD/JPY dipping 0.13% to 110.20, off Friday’s one-week high of 110.81.
In Japan, data on Monday showed that core machinery orders fell more than expected in April, underlining concerns over the country’s fragile economic recovery.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slid 0.14% to 97.10, 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.
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