* 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 prices, adds bank trade recommendation, HSBC comment)
By Patrick Graham
LONDON, April 19 Sterling hovered a cent below
Tuesday's six-and-a-half month highs against the dollar on
Wednesday, the jury still out on whether it can make more
progress on the back of optimism around the shock calling of a
June 8 parliamentary election.
Dealers said the pound's almost 4-cent surge in the previous
session, half of it in U.S. trading time after London dealers
had gone home, had likely cleared out a large portion of the
record bearish bets against the currency that have dominated
trading since the Brexit referendum last June.
The prospect of a stronger majority and longer term for
Prime Minister Theresa May, ahead of the opposition Labour Party
by 20 clear points in opinion polls, has spurred hope of a
slower, more orderly departure from the European Union after
But traders remain cautious on backing more gains into a
weekend liable to be dominated by the first round of French
elections. UK retail sales numbers on Friday could also provide
more evidence of sinking consumer demand and economic growth
into the election.
"It isn’t quite the one-way street that a lot of people have
painted over the last 20 hours," said Richard Benson, co-head of
portfolio investment with currency fund Millennium Global in
"With a 20-point lead off the starting blocs, I would have
thought the risk is more that it will narrow than grow. A
positive surprise from the French election would also presumably
see a squeeze higher in the euro after the weekend."
After briefly gaining in early trade in London, sterling
traded 0.2 percent weaker compared to the U.S. close at $1.2811.
It was down 0.1 percent at 83.64 pence per euro.
While a larger Conservative majority would drive through the
clean break with Europe that May has outlined and which has sent
sterling lower since last June, it might also give her more room
to make some of the big compromises needed to deliver a smooth
French bank Societe Generale recommended selling options
betting on falls and volatility in sterling, with a view to the
pound strengthening above $1.30 in the near term.
"The worst may be behind us," the bank's analysts said.
Analysts from other major banks and investment houses for
the moment seem to largely discount other potential
post-election scenarios, like a surge for the pro-EU Liberal
Democrats that could derail May's plans.
"Could an 'anti-Brexit' political movement succeed? Not
likely," said Nomura strategist Jordan Rochester. "It would need
the Lib Dems to have a 10 to 15 percent surge in the polling
that we’ve only seen happen once (2010) in such a short amount
"Sterling is likely to continue to $1.30 before losing steam
around $1.32 as the market proceeds to digest what a General
election win for the Conservatives may bring."
Two-month implied dollar-sterling volatility, covering the
election, rose to its highest since March 23 but remained below
9 percent, far below peaks seen at other political and policy
flashpoints over the past six months.
"We see this sudden announcement as just another symptom of
the uncertainty in UK politics at the moment – and not a
particular reason to buy or sell the currency," HSBC analysts
said in a note.
"A diminished opposition might allow the government a freer
rein to push through its agenda. On the other hand, if a new
intake of Conservative MPs were more centrist in their
expectations of Brexit, then the voice of the ‘hard Brexit’
backbenchers would also be diminished."
(Reporting by Patrick Graham; Editing by Toby Chopra)