* 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 Patrick Graham and Ritvik Carvalho
LONDON, May 10 Sterling hit a three-week high
versus the euro and hovered just below $1.30 on Wednesday as
investors reined in more of the negative bets that have
dominated the past year amid a collapse of concerns over global
The pound has benefitted over the past month from a general
election that looks set to hand more time to Prime Minister
Theresa May to conduct Brexit negotiations and the overall
process of leaving the European Union.
Traders and analysts also say the UK currency has tended to
be one of the beneficiaries of a fall to long term lows in
implied currency volatility, allowing investors to buy
currencies traditionally attached to periods of stronger and
more stable global economic growth.
One-month pound/dollar implied volatility - an option that
indicates investor expectations for price movements over the
next 30 days, was around 6.2 percent on Wednesday, its lowest
since December 2015.
"There haven't been any big drivers this afternoon from
headlines, it has been mainly technical," said Clara Leonard, a
G10 FX strategist with BNP Paribas in London.
"We remain bullish but mostly against the euro but not the
dollar. This is driven by positioning. We think that a lot of
the short positioning has been cut and that investors may
continue to do so."
Bets against the pound hit a series of record highs between
October and the end of March, banking industry data show. They
have been falling steadily in the past month as dollar rates
headed towards $1.30.
In a week light on data, the main event is Thursday's Bank
of England inflation report and policy meeting.
Faced with Brexit unknowns, a national election and mixed
economic data, economists say Governor Mark Carney and his
colleagues will likely say they want more clarity before laying
the ground for the first interest rate hike in nearly a decade.
But after one BoE policymaker voted for a rate rise in
March, any signs of change in the Bank's stance of keeping UK
rates at record lows is liable to provoke a bounce for the
Sterling rose as much as 0.4 percent to $1.2988 in morning
trade on Wednesday before falling back to stand flat on the day
It gained 0.3 percent to hit a three-week high of 83.83
pence per euro before retreating to 84.05 pence.
"The focus now is really on the Bank of England, and maybe
that could be an explanation (for sterling strength)," said
Richard Falkenhall, currency strategist with SEB.
He pointed to policymaker Kristin Forbes' vote for a rate
hike in March and the possibility that other members of the
Bank's rate-setting committee could follow suit.
"It could also be as simple as there is right now a silent
period, so to speak, when it comes to the Brexit negotiations
because of the UK election."
(Editing by Andrew Heavens and Ken Ferris)