Sterling wipes out day’s gains amid reports PM is facing no-confidence vote

The pound is going to stay volatile as long as political chaos reigns in Westminster, experts warned

The pound has dropped back against the dollar and the euro, hitting 20 month lows after reports that MPs have reached the minimum number of letters required for a vote of no confidence in the prime minister.

Sterling plummeted on Monday after Theresa May postponed a crucial parliamentary vote on her Brexit deal, fearing a humiliating loss.

The currency gained back some of those losses on Tuesday, but in the afternoon tumbled.

Against the dollar, the pound fell 0.4 per cent to $1.2511 and it stayed flat against the euro, hovering around €1.1065.

The reversal in direction came after several reports that Theresa May could face a vote of no confidence in the coming days, after the threshold of 48 letters required to trigger such a vote was met.

The pound was boosted somewhat earlier on Tuesday after figures from the Office for National Statistics showed that wages for UK workers had grown at their fastest rate in a decade in the three months to October.

However, Conor Campbell at Spreadex said: “The pound cut a precariously positive figure.”

Analysts have recently warned that the pound is likely to be highly volatile until the government makes a decision about Brexit.

Lukman Otunuga, research analyst at FXTM, warned: “If investors become more anxious that the United Kingdom is falling into either a no-deal Brexit or even worse, a disorderly Brexit trap, then a move to a 1.20’s low cannot be ruled out over the coming weeks.

“As the week progresses markets will be keeping a very close eye on whether May has the ability to renegotiate with Brussels in a bid to save the deal, if she will end up facing a leadership challenge, or the possibility of a second Brexit referendum.

"With the chaos in Westminster raising the likelihood of a no-deal Brexit scenario, the British pound is in trouble.”