LONDON, 07 May (Reuters) - Sterling was a touch higher versus the dollar and steadied against the euro on Friday, but was on track for weekly gains against both as traders watched for British election results.
The British currency was unable to hold on to gains made on Thursday after the Bank of England slowed the pace of its trillion-dollar bond-purchasing programme.
The pound was 0.2% higher at $1.3922 versus a weakening dollar at 0834 GMT. It was up to flat against the euro at 86.80 pence.
Traders were looking for evidence of any political risk after Thursday’s elections.
Of most interest to sterling traders is the Scottish election, where the pro-independence ruling Scottish National Party has vowed to call another referendum on breaking away from the United Kingdom if it wins a majority of seats.
Polls put the SNP significantly ahead of rivals but it could fall short of an outright majority. Just over a third of the results will be announced on Friday and the remainder will be announced on Saturday.
ING analysts said that a new Scottish referendum “is an event risk that could hold GBP back, but otherwise an optimistic assessment from the BoE yesterday should continue to see GBP supported”.
The BOE predicted a sharper rebound in the British economy thanks to easing COVID-19 restrictions but said it needed clear evidence of a recovery before tightening policy.
It forecast economic growth of 7.25% in 2021, up from a 5% growth forecast in February, while predicting that inflation would remain contained even with the accelerating recovery.
The upgraded growth and inflation forecasts are bringing some comfort for GBP bulls but the sterling rally in the first quarter “has already baked in a lot of good news into the price”, said Jane Foley, head of FX strategy at Rabobank.
Sterling had its best quarter since 2015 versus the euro, gaining around 4.8%. Analysts attributed the move mostly to Britain’s faster vaccine rollout.
But as vaccine push accelerates in the euro zone, Rabobank expects a slow move lower in EUR/GBP to 84.00 pence in the coming month, Foley said.
(Editing by Angus MacSwan)