November 14, 2019 / 10:36 AM / 21 days ago

Sterling hits six-month high against the euro in late rally

LONDON (Reuters) - Sterling rose on Thursday to its highest in six months against the euro and climbed as much as 0.4% versus the dollar in a late rally that puzzled analysts.

FILE PHOTO: Pound Sterling notes and change are seen inside a cash resgister in a coffee shop in Manchester, Britain, Septem,ber 21, 2018. REUTERS/Phil Noble

The pound was last up 0.2% at $1.2884. Versus the euro it was last at 85.54 pence after hitting 85.45 pence late in the trading day, it’s strongest since May 7.

“I can see it’s moving up but we’re not sure why,” said Morten Lund, senior currency strategist at Nordea.

Expectations that Britain’s ruling Conservative Party might win a majority in a Dec. 12 election has fuelled investors’ optimism that the Brexit impasse will finally end.

“If you look at the polls and everything, it seems to me that it’s more likely than not that the election will result in a Conservative majority and if that’s the case, I suspect that Brexit will completely come off the headlines,” said Luca Paolini, Pictet Asset Management’s Chief Strategist.

“There will be some sort of soft Brexit, one way or another, and investors will move on.”

Prime Minister Boris Johnson’s Conservatives have a 10-point lead over the main opposition Labour Party, a poll by Savanta ComRes showed on Wednesday.

A poll by Ipsos Mori on Thursday showed that 25% of respondents expected a Conservative majority while a third expected a hung parliament with the Conservatives as the largest party.

Brexit Party leader Nigel Farage said earlier this week he would not contest the 317 seats the Conservatives won in the 2017 election, a step that could pave the way for a majority in parliament for Johnson’s Brexit deal.

“The Brexit Party is standing down in some seats,” Nordea’s Lund said. “If they throw in the towel on more seats that would be positive for sterling and support the narrative that a no-deal Brexit is unlikely.”

On Thursday, Farage said the odds were on a small Conservative majority. Asked if he trusted Johnson, Farage said “not really”.

Johnson’s planned campaign visit to a bakery in southwest England was cancelled after protesters gathered outside, the BBC reported.

The currency was unmoved by weaker-than-expected British retail sales, which rose 3.1% year-on-year in October. Economists polled by Reuters were expecting a 3.7% increase.

Reporting by Olga Cotaga; Additional reporting by Elizabeth Howcroft; Editing by Gareth Jones, Peter Graff and David Clarke

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