Sterling fell to its weakest level of 2019 on Monday, as political uncertainty stoked by the Conservative leadership contest continued to drag.

The pound remained mired under the $1.26 mark, having closed under that line on Friday for the first time since Theresa May resigned as leader of the party, opening the way for Conservatives to elect her successor as prime minister.

The frontrunner, Boris Johnson, has pledged that the UK will leave the EU under his leadership on October 31 with or without a deal.

Sterling fell 0.5 per cent to $1.2532, its lowest closing value since December 11, according to Refinitiv data.

The prospect of a disorderly Brexit has rattled nerves in currency markets. A weak run of data has added to the concern, while the Bank of England holds a monetary policy meeting this week, at which it could become the latest central bank to take a dovish turn.

“A no-deal Brexit in October is still a market concern. But it’s not just politics that drives price action, the data surprises and data momentum in the UK have been pretty poor too,” said Jordan Rochester, an FX strategist at Nomura.

Mr Johnson, a former foreign secretary and London mayor, won the first round of the poll of Conservative MPs by a significant margin. Two candidates will be put to a final vote of party members after run-off elections this week.

In the meantime, some analysts expected sterling to find support from the BoE, as it plots the next steps for UK interest rates.

Citi analyst Tiia Lehto said: “Hawks at the Bank of England argue (and may express in votes) that the labour market is running hot. However, Brexit cracks are visible in the economy and could easily aggravate into the autumn. Expect some hawkish protest at the meeting on 20 June, but the MPC looks set to miss the boat for rate hikes this year.”

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