LONDON (Reuters) - Sterling fell against the dollar on Thursday as the market awaited the outcome of the most closely contested general election in nearly two decades, while lower-than-expected UK services sector data also hurt the pound.
Sterling fell below the psychological $1.50 level as some traders attempted to take out barriers, and investors pared back riskier assets on euro zone debt concerns.
Britain’s top shares fell 1.6 percent by late trade.
Latest opinion polls put the opposition Conservatives between six and nine percentage points ahead of the Labour Party, which would make the Conservatives the largest party but without enough seats in parliament to form a government.
“A hung parliament in the UK will not prove to be as negative a backdrop for sterling as is widely feared and a bounce in cable towards the mid $1.50s should not be precluded, particularly in the event of a Conservative majority,” said Neil Mellor, currency strategist at Bank of New York Mellon.
“However, if only for the ongoing crisis in the euro zone and its longer-term ramifications, we cannot be optimistic that risk appetite will constitute support for cable (sterling/dollar) much beyond these levels.”
By 4:13 p.m., sterling was down 1.0 percent at $1.4941. The currency has lost around 7.5 percent against the dollar this year.
Polls close at 10 p.m. and exit polls will be broadcast immediately after, giving the first indication of the outcome with results coming in through the night.
Services PMI headline activity index fell to 55.3 in April from 56.5 in March, much lower than a forecast of 57.0, and the weakest since January.
Analysts said the data gave an excuse for traders to adjust their positions ahead of the election outcome.
“Right now you have a lot of profit-taking and position-squaring ahead of the election. People assume there will be a hung parliament but not what kind of hung parliament,” said Michael Hart, currency strategist at Citi.
“Increasingly people are looking at the resolution of uncertainty as positive for sterling.”
The euro rose 0.1 percent at 84.93 pence, erasing losses which took it to a nine-month low of 84.28 pence. The euro weakened across the board on concerns Greece’s debt problems would spread to other euro zone countries.
On a trade-weighted basis, the pound hit a two-month high of 80.4, driven largely by its earlier gains against the euro. The single currency has by far the largest weighting in the trade-weighted index compiled by the Bank of England.
Additional reporting by Natsuko Waki; Editing by Toby Chopra