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Resurgent euro keeps sterling under pressure
April 25, 2017 / 8:46 AM / 7 months ago

Resurgent euro keeps sterling under pressure

* 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 Ritvik Carvalho

LONDON, April 25 (Reuters) - Sterling dipped against the euro on Tuesday, kept under pressure by the single currency’s renewed strength as relieved investors turned optimistic on Europe after the first round of the French presidential election.

On Monday the pound had its worst day versus the euro since early January, falling 1.4 percent after a run-off vote between two strongly anti-EU candidates was averted in the election. Expectations that centrist Emmanuel Macron will easily beat far-rightist Marine Le Pen in the second round on May 7 have fuelled a relief rally in the EU’s shared currency.

That sustained rebound in the euro kept up pressure on Tuesday on sterling, which was down 0.1 percent at 85.01 pence per euro.

“We’ve seen the euro maintain much of its strength both against the dollar and the pound following the relief rally and so we’ve seen sterling/euro hover around the same levels we saw yesterday,” said Alexandra Russell-Oliver, currency analyst at Caxton FX.

Sterling had rallied almost 2 percent last week to hit four-month highs versus the euro after British Prime Minister Theresa May called a snap election. Investors expect her Conservatives to win by a landslide, giving her a clear domestic mandate as Britain heads into exit negotiations with the European Union.

“The pound’s euphoric rally on last week’s snap election news could be at further risk if the market loses confidence in the election’s ability to make for easier negotiations with the EU. The probability of Macron as the next President in France is also not doing any favors for the pound, with the candidate a well known critic of the UK leaving the EU,” LMAX analysts said in a note.

Against the dollar, sterling was up 0.1 percent at $1.2802.

This week, investors will look for UK economic output data out on Friday, while eyes will also be on an EU summit on Saturday at which draft negotiating guidelines for Brexit will be finalized.

EU leaders will warn Britain it cannot assume its big financial services industry will be included in any free trade deal after Brexit, diplomats said on Monday after fixing negotiating terms in a draft document.

Amid concerns for the health of the British economy and the tone of Brexit negotiations, investors have also been wary of calls for a vote on Scottish independence, which could threaten a breakup of the UK.

Scots voted by a wide margin to stick with the European Union in last June’s referendum, clashing with the UK as a whole which voted to leave. Scotland’s devolved government, run by the Scottish National Party (SNP), says this means the country should be given a new chance to decide whether it wants to split from the UK. The central government in London opposes this.

Most Scottish voters do not want another referendum on independence from the United Kingdom and support for secession itself appears to have weakened, according to a Kantar survey. (Reporting by Ritvik Carvalho; Editing by Mark Trevelyan)

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