Seasonal boost helps sterling towards $1.30

Pound coins are seen in front of a displayed U.S. 100 dollar banknote in this picture illustration taken January 18, 2017. REUTERS/Dado Ruvic/Illustration

LONDON – Sterling rose around half a percent to 7-month highs above $1.29 on Thursday, helped by a broader softening of the dollar and polls showing Prime Minister Theresa May on course for a landslide in the early election she has called for June.

The pound rose by as much as 4 cents when May announced the election nine days ago but investors have looked unsure about driving the pound higher in the days since and the highs hit briefly on Thursday were only 10 ticks above last week’s.

By 0930 GMT it had risen 0.4 percent to $1.2898, having hit a high of $1.2917 in early trade in London. It also gained 0.4 percent to 84.56 pence per euro, around half a percent below intraday highs from the previous session.

Bank of America Merrill Lynch strategist Kamal Sharma said May’s lead in the polls had seen off any downward pressure on the pound, leaving it clear to benefit from tax flows which historically tend to push it higher in April.

“The impact of the election has diminished downside risks,” he said. “That has largely played out in terms of its impact on cable and now we are reverting back to the seasonal outperformance.”

Over the past 12 years, sterling has risen by an average of 2.3 percent every April. It is up around 2.5 percent for the month so far.

Sharma, however, cautioned that the pound tends to do less well in May.

“Our forecasts were for one final dip and then sterling to gravitate towards some notion of fair value.”

Commerzbank technical analysts pointed to barriers to the pound breaking $1.30 in the near-term.

“We allow for further strength to the 55-week moving average at 1.2986 to be seen once a rise above the current April high at 1.2930 has been witnessed,” they said.

“Until then further sideways trading remains on the cards for the next couple of days.” – Reuters

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