Sterling slides on Starmer crisis and rate-cut bets

LONDON, Feb 9 (Reuters) - The pound dropped against the euro and slipped versus the dollar on Monday after the latest twist in the crisis engulfing Prime Minister Sir Keir Starmer and as expectations of further rate cuts weighed on the currency.

Morgan McSweeney, Starmer's chief of staff, quit on Sunday, saying he took responsibility for advising the Prime Minister to choose Peter Mandelson as ambassador to the U.S. despite his known links to Jeffrey Epstein.

Political pundits and market analysts said the pressure remained on Starmer, who is deeply unpopular with the public and faces tough local elections in the coming months.

The euro EURGBP= was last up 0.52% against the pound at 87.24 pence. Against the dollar the pound was down 0.16% at $1.359 GBP=D3.

Traders were also still reacting to a closer-than-expected Bank of England decision to hold interest rates last week, which caused them to ramp up bets on further rate cuts this year. Expectations of lower rates typically dim the appeal of holding a currency.

"Expect pressure to remain on both sterling and gilts as the market speculates over a change of personnel at numbers 10 and 11 Downing Street," said Chris Turner, head of global markets at lender ING, referring to the addresses of the prime minister and finance minister.

"Combined with a dovish twist at last week's Bank of England meeting, sterling is under pressure."