Sterling set for fifth daily rise ahead of UK election

Published On : 07/03/2024

Sterling set for fifth daily rise ahead of UK election

LONDON (Reuters) – The pound rose on Wednesday, taking advantage of a softening in the dollar and a reading of business activity that showed growth in the British services sector cooled in June, but not by as much as initially forecast.

The U.S. currency weakened against most others on Wednesday, bar the Japanese yen and Chinese yuan, after comments from Federal Reserve Chair Jerome Powell the previous day reinforced expectations that interest rate cuts were not far off.

Sterling was last up 0.13% on the day at $1.2703, set for a fifth straight day of gains and was flat against the euro at 84.72 pence.

The S&P Global UK Services Purchasing Managers Index fell in June to 52.1 from 52.9 in May, its lowest reading since November but revised up from a preliminary estimate of 51.2.

Data provider S&P Global linked the slowdown to companies taking a “wait-and-see” approach to the outcome of Britain’s national election on Thursday. Opinion polls show the opposition Labour Party is set to win, possibly with a record breaking majority.

“The UK election is unlikely to be a major market event. If the exit poll at 10 pm UK time (2100 GMT) shows a (large) Labour majority and the Conservative party as the second largest party, the market will quickly move on to focus on other factors,” Deutsche Bank strategist Shreyas Gopal said in a note.

Those “other factors” include the final round of voting in France’s parliamentary election, set for July 7, and key UK data later on in the month that could give the Bank of England room to cut rates at its August meeting, Gopal said, adding: “We remain constructive on the pound, having recently lowered our year-end forecast for euro/sterling to 82 pence.”

Futures markets show traders are still only betting on a roughly 50/50 chance of a cut at the Aug. 1 meeting, with a cut fully priced in September.

Investors are currently holding a long position in sterling worth $3.5 billion, having trimmed that back from a high of $4.15 billion two weeks ago, according to weekly data from the U.S. markets regulator.

(Reporting by Amanda Cooper; Editing by Elaine Hardcastle)

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