Pound recovers after sharp falls as political turmoil hits markets

Sterling crashed to eight-week low but analysts say possibility of softer Brexit may eventually work in UK currency's favour

The pound fell to an eight-week low and shares in housebuilders, banks and retailers lost ground after the shock election result, which increased uncertainty over both the forthcoming Brexit talks and the UK's economic prospects.

But the currency recovered from its worst levels as Theresa May announced she was forming a new government with the help of the Democratic Unionist party and vowed to press ahead with Brexit negotiations. So after falling 2.5% to $1.2635, its lowest since 18 April, sterling stood at $1.2737, down 1.65%, when London trading closed. Against the euro, it slumped to a seven-month low of a1.1289 but recovered to a1.1380, down 1.5%.