June 8, 2017 / 6:26 AM / 7 months ago

FOREX-Pound clings near 2-week high on UK election day; euro awaits ECB

* Sterling trades near 2-week high

* Polls suggest PM May’s Conservatives will win majority

* Euro steady ahead of ECB policy announcement

* Dollar falters vs yen, languishes near 7-week lows (Updates prices)

By Masayuki Kitano

SINGAPORE, June 8 (Reuters) - Sterling held steady near a two-week high on Thursday, supported by expectations that Prime Minister Theresa May’s party will win a majority in Britain’s election, while the euro held steady ahead of a European Central Bank policy announcement.

The pound traded at $1.2960, staying near a peak of $1.2970 set on Wednesday, its highest level since May 25.

Opinion polls on Wednesday showed that May is on course to increase her majority in parliament in Thursday’s election, suggesting her gamble to call the vote to strengthen her position in Brexit negotiations will pay off.

To see a Reuters interactive graphic on the election polls and results, click on: tmsnrt.rs/2q7tC48

“Markets appear to be pricing in a Conservative Party majority victory,” said Jasslyn Yeo, market strategist in Singapore for J.P.Morgan Asset Management.

If the Conservative Party gains a decisive majority of more than 50 seats, that would probably be seen as a positive outcome for sterling, Yeo said.

“However, we still see much uncertainty surrounding the UK election, where a higher turnout vote of young people could potentially turn the tables on investors,” she added.

The pound gained as much as 4 percent after May called a snap election seven weeks ago, as polls then suggested a landslide win for her Conservative Party would bolster the prime minister’s position when Brexit negotiations open later this month.

But recent polls predicting outcomes ranging from a majority for the Conservatives to a ‘hung’ parliament have seen sterling slip from the $1.30 mark it hit last month.

The euro inched up 0.1 percent to $1.1261, with the market’s focus on the ECB’s monetary policy announcement due later on Thursday. Earlier in June, the euro reached a high of $1.1285, its highest level in about seven months.

The ECB is widely expected to keep policy unchanged on Thursday, including its 2.3 trillion euro ($2.59 trillion) bond-buying programme.

The euro’s medium-term view looks positive, supported by prospects for the ECB to start heading towards normalising its monetary policy in coming months, said Peter Dragicevich, G10 FX strategist for Nomura in Singapore.

“It’s more for us a story of positive euro, not just against the dollar but pretty much against all currencies... even against the commodity bloc,” he said.

The ECB will probably announce a tapering of its asset purchases in September and actually begin tapering in January next year, Dragicevich added.

Investors will closely monitor U.S. Senate testimony by former FBI Director James Comey later on Thursday. Comey was abruptly fired by President Donald Trump in May.

Investors are worried his testimony could dampen already flagging momentum for Trump’s agenda of rolling back regulation and overhauling the tax code.

In written testimony released on Wednesday, Comey said that Trump asked him to drop an investigation of former National Security Adviser Michael Flynn as part of a probe into Russia’s alleged meddling in the 2016 presidential election.

The dollar slipped 0.3 percent to 109.52 yen, edging back in the direction of Wednesday’s low of 109.115 yen, its lowest level in about seven weeks.

Traders said the yen edged higher after Bloomberg reported on Thursday, citing unnamed sources, that the Bank of Japan was re-calibrating its communications to acknowledge that it is thinking about how to handle a future exit from monetary stimulus. (Reporting by Masayuki Kitano; Editing by Shri Navaratnam and Richard Borsuk)

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