* 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 Jemima Kelly
LONDON, May 5 The pound inched higher on Friday,
a week of generally upbeat business sentiment surveys pushing it
towards recent seven-month highs close to $1.30, as Prime
Minister Theresa May's Conservatives made strong gains in local
Sterling has surged around 3.5 percent against the dollar
since May announced surprise national parliamentary
elections two weeks ago, read by markets as a move that will
strengthen her hand in Brexit talks over the next 18 months.
Record bets against the currency made by hedge funds and
other speculative investors since last June's Brexit referendum
seem to have topped out, encouraging many to cash in by buying
back the pound.
It hit a seven-month high of $1.2965 last week, and traded
just below that level on Friday at $1.2956, up 0.3 percent on
But some strategists said that two straight weeks of short
positions being unwound meant that sterling would need fresh
drivers to push any higher.
"It must be noted that speculative positioning in sterling
has reached more balanced territory. This suggests that fresh
buying, as for instance driven by higher rate expectations, may
be needed in order to trigger more sustained currency upside
from here," wrote Credit Agricole currency strategists.
Data this week has also again driven back the doomsayers who
warn that rising inflation and the impact of Brexit on jobs,
immigration and investment will weaken the UK economy in the
The Markit/CIPS Services Purchasing Managers' Index (PMI), a
closely watched gauge of the services sector that dominates
Britain's economic output, rose to a four-month high of 55.8 in
April, above all forecasts in a Reuters poll of economists.
The reading was the second strongest since mid-2015 and
another boost for May, who has made sound management of the
economy a central plank of her election campaign.
There are still nerves. Sterling dropped briefly earlier
this week after May accused EU officials of trying to interfere
in the election.
But polls show she should win by a landslide, and any
uncertainty over that view was removed on Friday as the
Conservatives won hundreds more local council seats.
"Right now it seems hard to justify getting bearish again on
the pound," said ING strategist Viraj Patel.
"Markets are unwinding their short positions, trying to get
to a neutral level. That is probably around $1.30-$1.31 but it
does need a catalyst for us to get there - maybe the election is
Sterling gained 0.3 percent to 84.80 pence per euro.
(Editing by Ed Osmond)