* 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
(Updates story, adds comment)
By Jemima Kelly and Ritvik Carvalho
LONDON, May 9 Sterling steadied near recent
seven-month highs close to $1.30 on Tuesday, as traders looked
to a Bank of England inflation report and policy meeting this
week for new drivers for a currency that has climbed almost 5
percent in the past month.
The BoE's "Super Thursday" will be closely watched for clues
on how long UK interest rates will remain at record lows.
Inflation has risen above the Bank's 2 percent target, outpacing
wage growth and hitting consumers, who have shored up the
economy since last year's Brexit vote.
A recent Reuters survey forecast no change in interest rates
until 2019 at the earliest as the central bank waits to see how
divorce negotiations with the European Union pan out.
Investors will also be on the look-out for whether the Bank
cuts its economic growth forecasts, having raised them in its
last report in February.
Until then, sterling will probably stay in the
$1.2850-$1.2990 range it has traded in since the start
of last week, analysts said. It was flat at $1.2940 on Tuesday,
close to a seven-month high of $1.2990 hit at the start of the
"We tested the $1.30 mark when we saw markets return after
the French election...but I think we'll continue to see
resistance around there," said Alexandra Russell-Oliver,
currency analyst at Caxton FX.
"We'd probably want to see either additional MPC (Monetary
Policy Committee) members take a hawkish stance or an adjustment
in the Bank of England really to more firmly indicate a hawkish
tone before we'd be able to see that level broken."
Data released on Friday showed speculators trimmed their
short positions on the pound for a third week in a row, to a
two-month low of 81,364 contracts.
"The big driver for sterling over the past month or so has
been short-covering, but whether people want to buy it and push
it above $1.30 is another (matter)," said Rabobank currency
strategist Jane Foley.
The pound is trading around 8 U.S. cents higher than its
March lows, with investors buying back into the battered
currency last month when Prime Minister Theresa May unexpectedly
called an early election for June 8.
That reflects a view among investors that May's Conservative
party will get a larger majority that will give her a stronger
hand to compromise in Brexit talks. That view had now been baked
into the price, Foley said, and therefore sterling needed fresh
impetus for further gains.
Sterling is still down almost 14 percent against the dollar
since last June's EU referendum. But it is also almost 13
percent higher than the 31-year lows it hit in October.
Against the euro, the pound is down less than 10 percent
since June, and was up 0.3 percent on Tuesday at 84.16 pence
"The currency remains cheap, and speculative positioning
remains heavily bearish," wrote BMI strategists in a research
note. "We expect (sterling) to continue outperforming its peers
over the coming months."
(Editing by Hugh Lawson)