By Stefano Rebaudo
(Reuters) – Sterling was on track for its biggest monthly rise versus the euro since January as political concerns weigh on the single currency ahead of general elections in the UK and France.
The pound edged higher on Friday after revised data showed Britain’s economy pulled out of recession at a faster pace than previously thought in the first three months of this year.
It was up 0.06% versus a flat dollar at $1.2646. It was up 0.05% against the single currency at 84.72 pence per euro and set for a monthly rise of 0.6%.
Investors believe that the expected significant Labour majority after the vote of July 4 would bring more stability to UK politics and open up the potential for relations with the European Union to improve in the coming years.
Meanwhile, the most likely outcomes in France, which involves a victory of the far-right party National Rally (RN) or the far-left New Popular Front (NPF), could threaten the safe-haven status of the national debt, weakening the euro.
An opinion poll showed on Friday that RN might win as much as 37% of the popular vote, the NPF leftwing alliance was seen reaching 28% of the vote, while President Emanuel Macron’s centrist bloc was seen reaching 20%.
“We think there are clear reasons why markets should retain a short EUR/GBP bias – relative political stability around elections; strong and improving macro performance in the UK and a higher terminal rate versus euro,” said Kamal Sharma, forex strategist at BofA.
Analysts argued a surprise outcome, such as a poorer showing by Labour or no decisive majority by any party, could put pressure on the pound.
Investors await later in the session the report on the core U.S. personal consumption expenditure index (PCE), the Federal Reserve’s favourite inflation gauge, which could affect expectations for the U.S. central bank’s monetary easing cycle.
Markets priced in a bit more than a 50% chance of a first 25 bps rate cut by the Bank of England and 42 bps of cumulative monetary easing by year-end versus 45 bps in the U.S.
(Reporting by Stefano Rebaudo; Editing by Anil D’Silva)
