May 29, 2017 / 12:44 AM / 3 months ago

FOREX-Sterling steadies after opinion poll pummelling

FILE PHOTO: A one pound coin lies on a Union Flag in this picture illustration shot on May 3, 2017.Darren Staples/Illustration/File Photo

LONDON (Reuters) - Britain's pound was the main mover among major currencies on Monday, recovering some ground after weekend polls showed Prime Minister Theresa May is set to win next week's elections even if the scale of victory is in question.

Sterling had its worst day since early February on Friday and fell around 2 cents last week as polls showed May's lead over the opposition Labour Party had shrunk from as much as 20 points last month to as low as 5 in one poll.

More surveys over the weekend confirmed the trend but also showed that May's Conservatives still lead and should win - just potentially not by the landslide she had targetted when calling the election six weeks ago.

With London markets closed for a holiday, the pound rose 0.2 to 0.3 percent in thin trade in Europe, trading at $1.2837 and 87.07 pence per euro respectively.

The dollar, which also struggled last week in the face of receding expectations for a major boost for growth from the Trump administration, was roughly steady at $1.1185 per euro and 111.35 yen.

"A lot of what we are seeing is the after-effects of Friday's news and data releases," said Thu Lan Nguyen, a currency strategist with Commerzbank in Frankfurt.

"We have a little bit of dollar strength following better U.S. data and some hawkish comments from Federal Reserve officials. And we have a little bit of a pound recovery following the latest poll results from the UK."

The dollar index, which tracks the U.S. currency against a basket of six other major currencies, was lower at 97.366 but above last week's nadir of 96.797, its lowest since Nov. 9.

San Francisco Federal Reserve President John Williams said in Singapore on Monday that medium-term trends in U.S. inflation remained "pretty favourable," despite some recent soft consumer price data.

The U.S. economy was at or near the Federal Reserve's goals of full employment and stable prices, Williams said, adding that the U.S. central bank wanted to ensure markets stayed calm as the Fed slowly returned interest-rate policy to normal.

Data on Friday indicated the U.S. economy was expanding, solidifying expectations for a rise in official interest rates next month and adding to the case for the Fed to begin paring its $4.5 trillion balance sheet.

"Friday’s batch of US data is weighing on the euro as it strengthens the case a recent slowdown in US data may in fact have been transitory in nature ," said LMAX Exchange analyst Joel Kruger.

With New York traders not at their desks, reaction was minimal to a speech by European Central Bank chief Mario Draghi, which stressed the need for extraordinary monetary stimulus and prodded euro zone bond yields lower.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

Editing by Larry King

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