The pressure on sterling came after reports that dozens of MPs in the ruling Conservative Party were backing a move to oust May, whose leadership has been battered by scandals and crises.
“The potential of a Tory vote of no confidence in Theresa May has pushed the pound lower,” said IG analyst Joshua Mahony.
Pound was down at $1.3108 from $1.3193 at 2200 GMT Friday, dangerously close to the $1.3050 level that pessimists believe would trigger a sustained sell-off. Against euro, the currency was trading at €1.1245 from €1.1308 from Friday.
But the pound managed to claw back some of its losses by the end of the day.
London’s benchmark FTSE 100 index of blue-chip firms got an early boost from the weaker pound, seen to be positive for multinationals, but eventually joined its European peers’ downward drift — although it still did slightly better than continental European bourses.
The FTSE 100 fell 0.2% at 7,415.18 points, Frankfurt’s DAX 30 dropped 0.4% at 13,074.42 points, Paris’ CAC 40 slipped 0.7% at 5,341.63 points, whereas the EURO STOXX 50 shed 0.5% at 3,574.52 points at close.
Two British cabinet ministers have been forced to resign in recent weeks — one over sexual harassment allegations and the other for a series of unauthorised meetings with Israeli officials — weakening May’s leadership.
Questions over May’s future come as a secret letter emerged from two cabinet ministers instructing her how to run Brexit.
The leaked memo from Foreign Secretary Boris Johnson and Environment Secretary Michael Gove, two top Brexit advocates, told May to ensure other ministers back the process by “clarifying their minds”. The government is under pressure to meet a two-week deadline set Friday by the EU’s chief Brexit negotiator Michel Barnier for a deal on exit terms ahead of a December EU summit.
In recent weeks, many major world markets have surged — with Wall Street hitting several records and Tokyo touching 26-year highs — on optimism about the global economy and a series of strong corporate earnings.
But investors have started to cash in as worries begin to emerge about high share valuations, while there are also fears about Donald Trump’s much-vaunted tax cuts as US lawmakers struggle to agree a deal.
New York investors also took a dim view of industrial giant General Electric slashing its dividend as it announced thousands of job cuts as part of a plan to shrink its business to focus on aviation, healthcare and energy.
The pound was down at $1.3108 yesterday, from $1.3193 at 2200 GMT on Friday.