* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Patrick Graham
LONDON, June 13 Sterling recovered around 0.2
percent on Monday of its almost 3 percent slide since the first
hint of UK election results on Thursday night, helped by hopes
domestic politics may be inching towards a "softer" and less
economically damaging Brexit.
Inflation numbers (0830 GMT) are the main set piece after
two traumatic days for the pound which saw Prime Minister
Theresa May's majority collapse and investors worry that
political turmoil would further weaken an already slowing
By 0742 GMT, the pound had recovered 0.2 percent from
Monday's closing levels in New York to trade at $1.2693, just
over half a cent above Friday's intraday lows.
Against the euro, it was also 0.2 percent stronger at 88.33
pence, having hit its weakest in seven months on Monday.
"Brexit talks will of course dominate the market mood and
this morning, amid talk of a cross-party plot to ensure the UK
negotiates for a 'softer' Brexit, there's an excuse for some
short-covering," said Societe Generale analyst Kit Juckes.
"That's a blip on the road to euro-sterling trading
comfortably above 90 pence."
Short covering refers to the closing of existing bets
against the currency, typically purely to lock in some gains on
such positions after the currency has fallen.
Prime Minister Theresa May meets the leader of a small
Northern Irish Protestant party (DUP) on Tuesday in an attempt
to save her premiership and avoid a second election that would
thrust Brexit negotiations, due to start this month, into
With some calling for her resignation and others describing
her as a dead man walking after last week's result, May won some
time when she performed well on Monday in front of Conservative
lawmakers who said they would help her remain in power for now.
But crucial for banks and financial markets are the blow the
election has delivered to May's plan for a "hard" Brexit that
prioritised immigration controls over membership of the EU's
There is no clear evidence of a move on that front among
Conservative leaders as yet, although many of the party's more
moderate supporters in the media have argued for it.
What is clear is that even should May gain the support of
the DUP for confidence votes and budgets, she will struggle to
legislate normally at a time when the economy badly needs fiscal
and policy support.
"With Theresa May holding coalition talks and fighting to
remain prime minister, but new elections before the end of
Brexit negotiations a very real possibility, the market focus
remains firmly on politics," Unicredit analysts said in a
"We expect the pound to slide further over the coming
months, with upside risks to our year-end forecast of 89 pence