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LONDON (Reuters) - Sterling dipped below $1.26 for the first time in more than two months on Wednesday, deepening this week's losses on signs that Prime Minister Theresa May is still struggling to find the support she needs for her government in parliament.
Hit by a retreat in the chances of a rise in interest rates after comments by Bank of England Governor Mark Carney on Tuesday, the pound fell another 0.2 percent in early London trade, to $1.2592.
It also weakened 0.3 percent to 88.40 pence per euro as officials said May would not seal a deal with Northern Irish Unionists (DUP) before the new parliament is launched by the Queen's Speech on Wednesday.
"Governor Carney's Mansion House speech killed any wind that was in sterling's sails yesterday," Societe Generale strategist Kit Juckes wrote in a morning note to clients. "The Conservative Party's lack of progress in reaching a deal with the DUP won't help sterling either."
By 0945 GMT, the pound had steadied around $1.2610, still down 0.1 percent on the day.
The Queen's Speech, due to begin around 1030 GMT, will be parsed for any sign of a softening of May's strategy on Brexit and signs of an easing of the cuts in public spending made by the Conservative administrations since 2010.
Stephen Gallo, head of European FX strategy with Bank of Montreal in London, said any hint that the new government's next budget will be more expansionary in nature might boost the pound.
"In general we look very rangey in cable at the moment, I could see a $1.25-1.28 range for a while," he said.
"The only situation where I could see massive downside materialising is if the government collapses or Labour gets the chance to form a government. I think it is clear that would be negative for the pound at the moment."
Reporting by Patrick Graham and Ritvik Carvalho, editing by Larry King