May 19, 2017 / 9:17 AM / 9 months ago

Sterling on track for 1 percent weekly gain after climb above $1.30

* Graphic: Sterling and gilt yields

* Graphic: World FX rates in 2017

* Graphic: Trade-weighted sterling since Brexit vote

By Ritvik Carvalho

LONDON, May 19 (Reuters) - Sterling was set for a 1 percent weekly gain versus the dollar on Friday although some investors were calling a top on the British currency, which climbed above $1.30 this week but is seen vulnerable to Brexit negotiations.

The pound surged to an eight-month high of $1.3048 after strong retail sales figures on Thursday, losing momentum later in the day in what some traders called a “flash crash”.

By 0854 GMT on Friday, it had recovered and was up half a percent on the day at $1.3005.

But strategists said the pound -- which has gained more than 3 percent in the past month on the announcement of a snap UK election -- would find it hard to advance further.

While positioning data shows speculators have largely reduced record high levels of bets against the pound, reports from major banks this week show big speculative investors and firms still tending to sell the currency whenever it blips higher.

“It was interesting that we couldn’t hold north of that $1.30 threshold yesterday and that for me suggests it is going to be a case that topside is relatively limited from here,” said Jeremy Stretch, currency strategist at CIBC World Markets.

“I would still probably be playing sterling from the short side although it’s more of a euro-sterling trade where you’re taking out the noise of more Trump-related matters.”

Sterling was 0.1 percent higher at 85.77 pence per euro.

Investors are confident that a widely expected big win for British Prime Minister Theresa May on June 8 will give her more room for manoeuvre in Brexit talks.

Her Conservatives are expected to outspend the opposition Labour Party in campaigning, and many of their traditional business backers are opting to stick with them despite concerns over Brexit.

Besides reiterating that no deal with Europe would be better than a bad deal, May’s election manifesto pushes back the balancing of the UK budget, a factor ING strategists noted might be giving a “modest lift” to sterling.

“Now the plan is to delay the balancing of the budget to 2025 from 2022, allowing room for fiscal support should Brexit require it,” they wrote in a note to clients.

“Also stepping back from the triple-lock on pensions allows more room for spending on other social programmes and should attract the centre left vote.”

Editing by Catherine Evans

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