London - Sterling fell a third of a percent against a broadly stronger dollar on Wednesday, but was around 2 cents above 5-year lows hit earlier this week as questions continue about the impact of elections next month.
While there has been much hedging by financial players against potential volatility around May 7 polls from which no outright winner is expected, the pound's trade-weighted value has been stable for almost two months and is up more than 1 percent this year.
There has been more noise in the past week, however, and Adam Myers, European head of FX strategy at Credit Agricole, said he interpreted opinion polls as turning against Prime Minister David Cameron's Conservatives, traditionally favoured by London's right-leaning City.
“Just because the pound hasn't really suffered very much ahead of the election doesn't mean that it won't,” Myers said.
“As of today we still favour sterling as a safe haven against the possibility of Greece leaving the euro zone, but if the polls go against Cameron for a couple more days, we will see sterling undermined.”
The pound was 0.3 percent lower at $1.4739 and just over 0.1 percent stronger at 71.97 pence per euro.
Another, and potentially more lasting issue for sterling may be Britain's economic prospects regardless of the shape of the new government. UK headline inflation on Tuesday came in at zero for the second month running, while other price indicators were marginally softer than expected and expectations for a rise in interest rates are receding into the middle of next year.
“Unless price and wage indicators surprise on the upside in the coming months, our call for a rate hike in the fourth quarter of 2015 comes with the risk of a later take off,” Barclays analysts said in a note.
Reuters