* 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 Fanny Potkin
LONDON, Oct 9 (Reuters) - Britain’s pound bounced back on Monday from its biggest weekly drop in a year as markets took heart from Prime Minister Theresa May promises to ward off challenges to her leadership.
May hinted at the weekend that she may be considering a cabinet reshuffle to reassert her authority, raising questions over the fate of foreign minister and Brexit campaigner Boris Johnson, who has been accused of undermining her.
Sterling rose half a percent to $1.3118 - recovering some ground from the 2.5 percent it lost last week - and was the biggest gainer among major currencies against a broadly muted dollar on Monday.
Sterling has become more sensitive to political noise in recent months and some strategists said the departure of Boris Johnson could increase the chances of a “soft Brexit” and may be positive for sterling in the short term.
“If Boris Johnson was to leave or be demoted as the weekend press is suggesting, that would be showing May’s leadership and that her vision of Brexit is the one that will be going forward with and that markets should be aligned to,” said Viraj Patel, an FX strategist at ING Bank in London.
Last week’s losses had dragged down sterling from a June 2016 high of above $1.3650 hit in late September and erased all its gains sustained after the Bank of England signaled an interest rate increase in the coming months.
On a trade-weighted basis, sterling fell to its lowest since Sept 2017. (Reporting by Fanny Potkin; Editing by Andrew Heavens)