London - Sterling hit a more than seven-year high against the struggling euro on Friday, as interest rate differentials moved in favour of the British pound with the European Central Bank gearing up to launch its 1-trillion euro bond buying programme.
The pound, though, fell against the dollar, easing to near four-week lows ahead of a US jobs report, with concerns about a potentially unsettling British election in May also weighing.
Sterling was down 0.2 percent against the dollar $1.5208, not far from a four-week low of $1.5194 struck in Asian trade. It was firmer against the euro, trading at 72.13 pence, its highest since December 2008.
As the European Central Bank seeks to launch its bond-buying programme next week, the gap between the British 10-year government bond yield and the euro zone 10-year reached its widest since September 2014, boosting the pound, traders said.
The dollar was firm near a 11 1/2-year high against a basket of currencies and could build on its gains if non-farm payrolls due later in the day support the case for a rise in US interest rates in coming months.
“Its all about the dollar ahead of non-farm payrolls today,” said a London-based spot trader. “Sterling remains a buy on dips but mostly against the weakening euro.”
The pound has been helped by better economic news which has kept alive expectations that a rise in interest rates in Britain could come sooner than expected.
Against that is the prospect of an election in May that looks unlikely to generate a clear majority for any party.
Investors are concerned by the prospect of heavier spending and taxes and more regulation of the financial sector under a possible centre-left Labour government. They also worry that Britain could leave the European Union if the Conservatives win.
“This election is very uncertain and while sterling's correlation historically to previous elections has not been strong, this time it could be different,” said Richard Falkenhall, currency strategist at SEB.
“We think the uncertainty created will see sterling lose ground and forecast sterling/dollar to drop below $1.50 in coming months.”
Reuters