April 20, 2017 / 9:15 AM / 5 months ago

Election optimism keeps sterling strong against dollar

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 (Reuters) - Sterling rose against a broadly weaker dollar on Thursday, with polls showing British Prime Minister Theresa May on course to win a landslide in June’s snap election cementing the view that she will get a stronger mandate for two years of Brexit talks.

The pound surged almost four full cents to its highest level against the dollar since early October on Tuesday after May’s surprise calling of an early general election for June 8.

After easing off a little on Wednesday, it was back up half a percent on Thursday at around $1.2835 by 1500 GMT, less than a cent away from Tuesday’s high of $1.2908.

Investors appear to be judging that a stronger mandate for May in parliament would potentially give her more chance of making the major compromises with the European Union necessary to smooth Britain’s exit from the bloc and cap any damage to the UK economy.

“An increased majority for the Conservative party in the upcoming election would provide the PM with a clear mandate at the start of the Brexit negotiations, as well as minimising political uncertainty,” wrote BNY Mellon strategists in a note to clients.

May’s Conservatives had 48 percent of the vote in a YouGov poll for The Times on Wednesday, compared with 24 percent for the opposition Labour Party, suggesting a landslide victory under Britain’s first past the post electoral system.

The pound was flat at 83.84 pence per euro, having hit 83.145 pence - its strongest since December - on Tuesday.

That the pound has not pushed on more strongly since Tuesday relates to the doubts over the Brexit process and other parts of the election fallout.

“Consolidation will be the order of the day now, because I think there’s a realisation that there’s both upside and downside risk on the table,” said ING currency strategist Viraj Patel.

“The positive case from the general election, potentially minimises the risk of a cliff-edge Brexit,” he added. Markets see a hard Brexit as a large negative.

Scotland’s First Minister Nicola Sturgeon said on Wednesday success for her Scottish National Party on June 8 would make it impossible for May to stop a new referendum on Scottish independence.

Victory for May will also further weaken any opposition from outside her party to the clean break with Europe she has outlined, likely including Britain’s exclusion from the continent’s single market.

The EU’s foreign policy chief on Thursday said Britain will lose more from the European Union from its decision to leave the bloc, adding talks with London were expected to be difficult.

Editing by Janet Lawrence

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