Pound sterling rises against the dollar as Theresa May becomes prime minister

The FTSE 100 eased off an 11-month high on Wednesday, opening down slightly

The pound has rallied against the dollar since Theresa May was announced as the next prime minister

Pound sterling stabilised and was heading for its longest rally, or period of unbroken gains, in two months on Wednesday as Theresa May prepared to take over as Prime Minister.

The gains in the pound signalled that investors were anticipating greater stability following the turmoil of Brexit, with the prospect of an interest rate cut looming on Thursday.

The pound hit 31-year lows in the week after the UK voted to leave the EU in referendum result that has sent tremors around the world.

It had recovered from lows approaching $1.27 against the dollar by Wednesday morning, to trade at $1.32.

In Asian trading, the pound broke $1.33 against the dollar. Tobias Davis, head of corporate treasury sales at Western Business Solutions, said that Theresa May's impending move into number 10 Downing Street had encouraged investors.

He noted that while Mark Carney's statement to the Treasury Select Committee on Tuesday focussed on liquidity provisions, it had also scrutinised at length his pre-Brexit discussions with George Osborne.

"Him and his [Monetary Policy Committee] team meet tomorrow to decide on rates. The market is pricing 70 per cent chance of a cut to 0.25 per cent, however I think otherwise and believe they will save their bullets for next month. [There are] rumours that Carney will look to purchase corporate bonds to form part of his impending stimulus program," Davis said in a note to investors.

May supported the campaign for the UK to stay in the EU. She has said she will wait until 2017 to trigger Article 50, which sets off the negotiations for the UK to leave the EU. Her softer approach to Brexit has been welcomed by investors.

The FTSE 100 eased off an 11-month high on Wednesday, opening down slightly at 6,680.68 after hitting 6,698.92, the highest level since August 2015, early on Tuesday.

Christopher Vecchio, currency analyst at DailyFX, said the stability would be short-lived.

"The state and structure of the UK’s relationship in the EU won’t be clear for a long while, and businesses simply can’t afford to wait that long. Markets may be calmer today, but a lack of political clarity in the UK will weigh on the British pound, which now has implications for risk markets globally," he said.

Vecchio isn't the only analyst who thinks the pound has further to fall.

Goldman Sachs have said the pound could go as low as $1.20 against the dollar in the next three months, levels not seen since the summer of 1985.#

Silvia Ardegna, an executive director in Goldman's macro and markets research team in London, wrote in a note to investors: “Following the Brexit surprise, we revised our Sterling forecasts weaker, but – amid lots of doomsday scenarios for the Pound – resisted the temptation to forecast a free-fall.

“Now that markets have settled somewhat, we are switching to forecast a second leg of weakness for the Pound, as the Bank of England’s policy response drives the currency weaker," she said.