LONDON (Reuters) - The pound struggled to break through the $1.30-mark yet again on Thursday, as a rebound in the dollar and an election manifesto from the opposition Labour Party that fuelled some profit-taking on the British currency.
In its fourth attempt to break through $1.30 in nearly two months, the pound struggled to gain momentum as investors moved to the sidelines before the Dec. 12 election.
Labour leader Jeremy Corbyn unveiled his party’s election manifesto on Thursday, setting out radical plans to transform Britain with public sector pay rises, higher taxes on companies and a sweeping nationalisation of infrastructure.
“Sterling yet again found profit takers up at 1.2970, but gave up more ground than most would have expected as the USD rallied against all majors,” said John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness.
“Support likely in the low 1.29’s, and very hard to see a break of this tight range ahead of the election.”
Voters face a stark choice at the country’s Dec. 12 election: opposition leader Corbyn’s socialist vision, including widespread nationalisation and free public services, or Prime Minister Boris Johnson’s drive to deliver Brexit within months and build a “dynamic market economy”.
Sterling has gained more than 8% from a Sept. 3 low as markets cut the risks of a no-deal Brexit. But gains have stalled in the past month as election uncertainty has risen, including the prospect of victory for the Labour Party that has pledged tax hikes for the wealthy and a swathe of nationalisations.
Jasper Lawler, head of research at London Capital Group, said sterling and shares in UK-focused companies were pricing risks attached to Brexit and a Labour government.
“The more extreme the Labour manifesto, the more volatility we’d expect to see in the pound and UK shares when the polls tighten closer to election day,” he said, speaking before the manifesto launch, though he did not expect an immediate reaction.
“We still favour a break above 1.30 in sterling but stand ready to reverse that call if Labour’s manifesto can capture the public’s imagination.”
Following the release of the manifesto, the pound edged 0.1% lower against a broadly resurgent dollar to $1.2908 and weakened against the euro at 85.74 pence.
The currency had slipped to a five-day low of $1.2888 after Tuesday’s televised debate in which Corbyn was seen to have performed better than expected.
Johnson meanwhile outlined plans for a multi-billion-pound payroll tax cut but has not fully unveiled the Conservatives’ manifesto.
While bearish positions on sterling have been cut in recent weeks, they remain high, and on derivatives markets too there are signs of nervousness. One-month implied volatility, a contract capturing the election date, has risen 5 percentage points in the past two weeks to 11.7%.
Reporting by Sujata Rao and Elizabeth Howcroft; Additional reporting by Saikat Chatterjee; Editing by William Maclean and Alex Richardson