* Graphic: Sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Jemima Kelly and Ritvik Carvalho
LONDON, April 26 Sterling clawed back some
ground against the euro on Wednesday, recovering from a two-week
low, as a perception that political risk had faded drove
investors to buy the pound after taking their bets against it to
The pound recorded its biggest one-day losses against the
euro since January on Monday, as the single currency surged
across the board on relief over market-favoured Emmanuel
Macron's victory in the first round of French presidential
elections, and sterling extended those falls on Tuesday.
But as the euro fell broadly on Wednesday on caution ahead
of the European Central Bank's policy meeting on Thursday,
investors took the opportunity to buy back the pound.
Positioning data shows bets against the currency remain
close to record highs, though they were trimmed last week after
British Prime Minister Theresa May called a snap election for
June, with markets seeing the election as likely to bolster
political stability as Britain exits the European
The June vote, as well as a reduction of political risk in
Europe more broadly on the view that Macron will easily beat
far-right rival Marine Le Pen in the second round of the French
election, had made investors more positive on the pound, UBS
Wealth Management currency strategist Geoffrey Yu.
"We have to acknowledge that sterling is still one of the
most underpositioned currencies in the market right now, and
with this recovery in European risk appetite, with more
stability in France and the UK, that has given an opportunity
for people to get positions back in," he said.
"On a comparative basis, if you were to choose which
currency was more underpositioned, euro or sterling, you’d take
sterling any day."
Sterling was half a percent higher against the euro by 1530
GMT at 84.69 pence, having hit a two-week low of
85.30 pence on Tuesday.
Against the dollar, the pound was flat at $1.2840.
Investors are eyeing gross domestic product numbers due on
Friday for clues on the state of Britain's economy, and are also
on the lookout for more news on Brexit.
"The first phase of negotiations with the EU will be marked
by sharp discord that is likely to be negative for the pound
(and euro)," BMO Capital Markets currency strategist, Stephen
The pound surged by as much as 4 U.S. cents on May's
election announcement last week, but its failure to push on
since points to the doubts that remain in the market about the
outlook for the currency and the UK economy in the months ahead.
Deutsche Bank revised up its sterling forecasts last week
and said that the election decision might be a "game-changer"
for the pound, down 20 percent against the dollar since the
Brexit vote last June.
(Editing by Louise Ireland)