Investing.com – The pound dropped on Monday as political pressure mounted on British Prime Minister Theresa May over the country’s exit from the European Union, while the dollar ticked higher but gains were held in check amid uncertainty over the future of planned U.S. tax reforms.
GBP/USD hit a low of 1.3062 and was at 1.3100 by 07:55 AM ET (12:55 PM GMT) down 0.71% for the day.
Sterling was pressured lower after news reports over the weekend said that forty members of parliament had agreed to sign a letter of no confidence in Prime Minister May, setting the stage for a formal leadership challenge.
Meanwhile, Foreign Secretary Boris Johnson and Environment Secretary Michael Gove wrote a letter to May, which leaked at the weekend, complaining that “some parts of Government” aren’t doing enough to prepare for a hard Brexit.
The letter added to investor jitters over the stability of government as parliament returns to debate the Brexit bill.
The euro rose to more than one-week highs against sterling, with EUR/GBP climbing 0.66% to 0.8900.
The euro was a touch lower against the dollar, with EUR/USD dipping 0.09% to 1.1655.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.12% at 94.41 as investors remained focused on planned U.S. tax reforms.
The index ended the previous week down 0.61% amid investor disappointment that a proposed U.S. corporate tax cut could be delayed until 2019 instead of being put in place this year.
Senate Republicans unveiled a tax plan on Thursday that differed from the one crafted by House Republicans, highlighting the challenges to reconciling the differences between the two plans with just a short time before the year-end deadline they have set to pass it.
Hopes of tax reform have helped boost the dollar since mid-September. Some traders believe tax reforms could bolster growth, adding pressure on the Federal Reserve to raise interest rates, known as the “Trumpflation” trade.
The dollar slid to the day’s lows against the yen, with USD/JPY down 0.22% to 113.30.