LONDON (Reuters) - Sterling stayed subdued on Tuesday, hovering below seven month-highs against the dollar as investors awaited further developments in Britain’s suspended election campaign after a suicide bombing rocked the English city of Manchester.
The pound traded lower for most of the day, last down 0.1 percent at $1.2993, below its highest level since Sept. 29 hit last week.
Britain’s main political parties agreed to suspend campaigning ahead of the June 8 election until further notice following Monday night’s explosion in Manchester that killed 22 people at a concert.
Analysts said that had put investors in a “wait and see” mood after polls over the weekend showed Prime Minister Theresa May’s Conservative Party’s lead narrowing over the opposition Labour Party.
“At present, with the campaign suspended in the light of what happened last night with Manchester, there’s not too much of the political aspect weighing on sterling at the moment,” said David Cheetham, chief market analyst at retail broker XTB.
“There’s kind of a ‘wait and see’ in terms of what would happen going forward ... I’d say it’s kind of finely poised at the minute.”
Sterling has gained nearly 4 percent since May surprised financial markets with her April announcement of a general election in June, prompting speculators to trim record high bets against the pound.
Speculators slashed “short” bets against the pound to 32,995 contracts in the week to last Tuesday, bringing them to the lowest since March last year. [IMM/FX]
But that meant sterling -- one of the Group of 10 countries’ best performing currencies this year -- was likely to be on the defensive going forward, with limited potential for further gains, according to ING currency strategist Viraj Patel.
“There’s greater two-way risk given that you had the positioning adjustment plus the narrowing of the polls and also just a narrower focus on the election. A lot of good news from these elections is already priced in,” he said.
Sterling climbed above two-month lows to trade at 86.31 pence per euro, up 0.2 percent on the day.
There were further signs that consumer spending -- a main driver of Britain’s economy -- is wilting in the face of inflation driven by the pound’s almost 20 percent fall since last year’s Brexit vote.
Data showed Britain’s budget deficit widened by more than expected at the start of the new financial year as value-added tax revenues flatlined. A separate survey meanwhile showed retail sales growth faded away this month after an April surge as worries about the outlook among major chains increased at the fastest rate since 2012.
Editing by Catherine Evans