Sterling has been rocked by discontent within Westminster following Boris Johnson's relatively narrow victory in a confidence vote, unsurprisingly losing ground against its major peers.

The pound dropped 0.7% to $1.2445 at one point, undoing all of the previous session's 0.3% gain.

Against the euro, the pound is trading at around 85.5 pence this morning, having dropped as a low as 85.8 pence at one stage.

The Prime Minister is regarded as having been significantly weakened despite surviving the confidence vote.

Danni Hewson, Financial Analyst with AJ Bell, pointed out that sterling had risen yesterday as traders were focused on the global situation, including the US inflation numbers - which are due later in the week - but it gave up the gains after the vote.

"A lot of that is down to the fact that the vote was incredibly close. Many are now wondering what Boris Johnson is going to do to try to shore up support among Tory members that voted against his," she explained.

"He has said he's going ahead with a plan for the economy and many think that might be a tax cut promise," Ms Hewson said.

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"There already had been a promise that it would happen in the next few years before the next election - if that's when it will be - but some worry that maybe there will be a push to add extra stimulus into the UK economy which it can't really deal with as inflation is so high and that's what's making the pound wobble," she added.

Victoria Scholar, Head of Investment at Interactive Investor, said the pound was suffering amid a lack of international investor confidence in the UK, both economically and politically, with criticism of Johnson's leadership expected to continue and the potential for government legislation to be blocked by members of his own party.

"Since May 2021, the pound-dollar has largely come under pressure, partly driven by strength in the greenback but also by softening UK growth prospects and narrowing interest rate differentials as central banks around the world catch up with the Bank of England in their shifts towards tighter monetary policy amid rising inflation levels around the world," she explained.

The Bank of England was one of the first major global central banks to rise interest rates last last year.

The British regulator last month raised interest rates to their highest since 2009 at 1% to counter inflation - now heading above 10% - as well as warning that Britain risks falling into recession.