Sterling fell sharply on Monday afternoon on the news that Foreign Secretary Boris Johnson has quit, just hours after Brexit Secretary David Davis also threw in the towel.
Mr Johnson’s resignation sent the pound tumbling into the red, down 0.1 per cent against both the dollar and euro at 1.32 and 1.12 respectively in afternoon trade.
The British currency had been riding high earlier in the session after Mr Davis resigned, with traders interpreting his departure as increasing the chances of a so-called “soft Brexit”.
But the departure of Mr Johnson plunges Prime Minister Theresa May into a fresh leadership crisis.
Connor Campbell, financial analyst at SpreadEx, said: “With that being two Cabinet resignations in less than 24 hours, the pound began to fret about the chances of a formal challenge to Theresa May’s leadership from inside the Tory party, and the subsequent potential for another general election.
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“To be fair to sterling, however, it avoided falling off a cliff like it might well have done, instead producing a more measured reaction to the day’s twists and turns.”
The resignations of the two Cabinet “big beasts” comes just days after Mrs May secured senior ministers’ agreement at Chequers for a Brexit plan about which both men had expressed reservations.
In explaining his resignation, Mr Davis warned that the UK is giving “too much away, too easily” in the Brexit talks, claiming that the Government had gone further than it should have in the negotiations.
Staunch Brexiteer Dominic Raab was named as Mr Davis’s replacement as Secretary of State for Leaving the EU.
“The big question now is, how much of a domino effect will this Davis/Johnson double have in the coming days (and indeed hours), and whether or not May has the support to climb onto her job,” Mr Campbell added.