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LONDON, June 20 (Reuters) - Sterling fell to a two-month low against the dollar on Tuesday after the Bank of England signaled it was in no rush to raise interest rates given the uncertainty Britain faces as it exits the European Union.
BoE governor Mark Carney said now was not the time to raise rates, dousing speculation among investors, which had built up after three policymakers on the Bank's eight-strong rate-setting committee voted in favor of a hike last week.
Carney's comments sent sterling almost a full cent lower in morning trade and the currency fell further as the economic and political challenges Britain could face over two years of Brexit negotiations became clear.
Billionaire investor George Soros said Britain was approaching a tipping point that would see the economy slow to such an extent that Brexit might even be reversed.
And S&P Global's sovereign ratings chief Moritz Kraemer said another snap election could prove negative for Britain's credit rating, adding the firm may not wait until Brexit terms are known before taking more rating action, likely to be another cut.
All of that had pushed sterling almost a full percentage point to lower $1.2603, its lowest level since April 18, by 1606 GMT.
It also fell 0.9 percent to a six-day low of 88.34 pence per euro.
Sam Lynton-Brown, currency strategist at BNP Paribas, said investors needed to reprice risks after Carney's comments, but the probability of a big weakening in sterling was now lower.
"The (Bank of England) is closer to hiking rates than we previously thought and the risk is that much more weakness of sterling could move the needle and prove the trigger for such a rise. FX investors are going to be cognisant of that."
Domestic politics also weighed on the pound. Britain's ruling Conservatives lost their parliamentary majority in a June 8 snap election called by Prime Minister Theresa May.
May is likely to strike a deal to stay in power with the support of Northern Ireland's Democratic Unionist Party on Thursday, according to the BBC's political editor.
"Sources still believe deal will be done, announcement still likely this Thursday," Laura Kuenssberg said on Twitter.
Earlier, Sky News cited unnamed sources from the DUP saying the talks were not going as expected, urging May's government to give "greater focus" to the negotiations and adding that the DUP "can't be taken for granted."
"The politics have the potential for a fair amount of volatility for sterling over the next few weeks and next few months in terms of the deals that are likely to be done," said Rabobank currency strategist Jane Foley. (Reporting by Ritvik Carvalho and Patrick Graham; Editing by Jemima Kelly and Janet Lawrence)