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Sterling set for biggest weekly rise in nearly 2 months

UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture

LONDON (Reuters) - Sterling fell on Friday, consolidating after three days of gains that took the pound to 2-1/2-year high versus the euro and a seven-month high against the dollar on expectations that the Conservative Party will win next week's British election.

The pound still headed for its best week since mid-October, having risen 1.2% against the dollar and almost 1% to the euro as various opinion polls indicate a comfortable majority for the ruling party.

On Friday the currency slipped 0.4% to $1.3107, just off a $1.3166 high touched Thursday, while against the euro it traded at 84.58 pence, having traded as high as 84.31 pence this week.

"It's a small move and no fundamental change (in terms of what opinion polls show)," Nordea analyst Morten Lund said.

"From a risk-reward perspective most people are too optimistic but if you look at option markets you can see some people positioning for sterling weakness."

David Katimbo-Mugwanya, a fund manager at EdenTree Investment Management, said confidence has been growing that a decisive election result and the subsequent passing of a Brexit withdrawal deal in the UK parliament would boost the economy.

"I would expect some sort of bounce (in the UK economy). You have already seen some of that in the currency," he said.

Should the Conservative Party win a majority in next week's election, some analysts believe any further rise in the pound will be limited, however.

An MUFG research note sent to clients said the need for Britain and the European Union to begin negotiating their future relationship next year would introduce a "sustained period of uncertainty".

Evidence of a weakening economy in Britain would also weigh on the pound, the analysts said, pointing to a new jobs market survey that showed the slowest rate of rising vacancies since October 2009.

Leaders of the two main parties were to go head-to-head in a TV debate later on Friday.


(Reporting by Sujata Rao and Tommy Wilkes; Editing by Dhara Ranasinghe/Mark Heinrich)