Sterling
held steady near a two-week high on Thursday, supported by expectations that
Prime Minister Theresa May's party will win a majority in Britain's election,
while the
euro held steady ahead of a European Central Bank policy
announcement.
The pound
traded at $1.2960, staying near a peak of $1.2970 set on Wednesday, its highest
level since May 25.
Opinion
polls on Wednesday showed that May is on course to increase her majority in
parliament in Thursday's election, suggesting her gamble to call the vote to
strengthen her position in Brexit negotiations will pay off.
To see a
Reuters interactive graphic on the election polls and results, click on:
tmsnrt.rs/2q7tC48
"Markets
appear to be pricing in a Conservative Party majority victory," said
Jasslyn Yeo, market strategist in Singapore for J.P.Morgan Asset Management.
If the
Conservative Party gains a decisive majority of more than 50 seats, that would
probably be seen as a positive outcome for sterling, Yeo said.
"However,
we still see much uncertainty surrounding the UK election, where a higher
turnout vote of young people could potentially turn the tables on
investors," she added.
The pound
gained as much as 4 percent after May called a snap election seven weeks ago,
as polls then suggested a landslide win for her Conservative Party would
bolster the prime minister's position when Brexit negotiations open later this
month.
But recent
polls predicting outcomes ranging from a majority for the Conservatives to a
'hung' parliament have seen sterling slip from the $1.30 mark it hit last
month. The euro inched up 0.1 percent to $1.1261, with the market's focus on
the ECB's monetary policy announcement due later on Thursday. Earlier in June,
the euro reached a high of $1.1285, its highest level in about seven months.
The ECB is
widely expected to keep policy unchanged on Thursday, including its 2.3
trillion euro (2 trillion pounds) bond-buying programme.
The euro's
medium-term view looks positive, supported by prospects for the ECB to start
heading towards normalising its monetary policy in coming months, said Peter Dragicevich,
G10 FX strategist for Nomura in Singapore.
"It's
more for us a story of positive euro, not just against the dollar but pretty
much against all currencies... even against the commodity bloc," he said.
The ECB will
probably announce a tapering of its asset purchases in September and actually
begin tapering in January next year, Dragicevich added.
Investors
will closely monitor U.S. Senate testimony by former FBI Director James Comey
later on Thursday. Comey was abruptly fired by President Donald Trump in May.
Investors
are worried his testimony could dampen already flagging momentum for Trump's
agenda of rolling back regulation and overhauling the tax code. In written
testimony released on Wednesday, Comey said that Trump asked him to drop an
investigation of former National Security Adviser Michael Flynn as part of a
probe into Russia's alleged meddling in the 2016 presidential election.
The dollar
slipped 0.3 percent to 109.52 yen, edging back in the direction of Wednesday's
low of 109.115 yen, its lowest level in about seven weeks.
Traders said
the yen edged higher after Bloomberg reported on Thursday, citing unnamed
sources, that the Bank of Japan was re-calibrating its communications to
acknowledge that it is thinking about how to handle a future exit from monetary
stimulus.
Reuters*
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