Pound hits five-week high against dollar

Published Apr 24, 2015

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London - Sterling rose to a five-week high against the dollar on Friday, joining a global push against the greenback and exposing the running assumption that uncertainty ahead of the UK general election is a mounting risk for the pound.

Hedge funds were said to be among those buying sterling, which was on track for a 1 percent rise on the week and its biggest two-week gain against the dollar since the immediate aftermath of Britain's last general election five years ago.

In early trading on Friday sterling was 0.6 percent higher at $1.5140, its highest since March 18. Last week, it was trading at a five-year low of $1.4580.

“Pre-election volatility is coming down. There's not that much supporting evidence to suggest that sterling is significantly undervalued,” said Josh O'Byrne, G10 currency strategist at Citi.

Several banks have published research recently suggesting a risk premium is built into sterling because the May 7 election is almost certain to deliver a hung parliament, leading to a potentially unstable coalition government.

“We are having trouble finding it,” O'Byrne said, adding that, if anything, sterling is on the strong side.

The pound was flat against the euro, however, with the common currency hitting a two-week high and on track for its fifth weekly rise in six against the dollar.

The euro was steady at 71.95 pence, down slightly on the week, its third weekly fall in a row.

British economic data this week was mixed. Retail sales fell unexpectedly in March, but minutes from the Bank of England's last policy meeting showed the central bank saw a chance that inflation could rebound faster than expected.

Traders' focus next week will be firmly fixed on the election campaign. One potential twist could come from the announcement from HSBC, Europe's largest bank, that it is reviewing whether to move its headquarters out of Britain following regulatory and structural changes in the industry.

The main economic data releases will be the first reading of first quarter gross domestic product (GDP) on Monday, and the first glimpses into manufacturing and service sector activity in April with Friday's purchasing manager index reports.

Reuters

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