Sterling soars on UK election outcome; U.S. jobs awaited

[May 08, 2015]  By Anirban Nag

LONDON (Reuters) - Sterling was the biggest gainer amongst major currencies on Friday, hitting its highest in over two months against the dollar, on relief that the Conservative Party was set for a surprise outright win at the British national election.

The dollar also gained against other major currencies like the euro and the yen as investors awaited the key U.S. jobs report later in the day.

With nearly three quarters of British seats counted, the Conservatives, seen as market-friendly, had won 203 of 650 seats with an exit poll suggesting they were on track to win 329 seats in the lower house of parliament, a majority that will help them govern for another five years on their own.

The straight majority was a surprise to many investors who, given that pollsters had predicted a "hung parliament", had factored in weeks of haggling over who would form the next government by buying options and hedging their exposure.

Sterling gained 1.5 percent on the day to $1.5475 after rising as high as $1.5523, its highest since Feb. 26, and pulling away from a five-year low of $1.4567 hit in mid-April.
 

The pound also marked its biggest one-day move against the euro since early 2013. The euro plummeted more than 2 percent on the day to 72.36 pence after touching a low of 72.19 pence, its lowest level since April 30, and well below a three-month peak of 74.82 pence scaled only a day ago.

"The UK surprise election result -- on target to see the Conservative Party win an outright majority -- is sterling positive," said Adam Myers, European head of FX strategy at Credit Agricole.

"Viewed within the context of the UK's large current account deficit, the policy uncertainty removed by today's result will be a relief for some previously nervous foreign investors."

Still, risks remain with the result likely to trigger a referendum on Britain's membership of the European Union within two years, while Scots could soon be pressing for independence.

The dollar rose 0.2 percent against the yen, trading at 119.95 yen , while the euro was down 0.6 percent at $1.1203.

Dollar bulls took hope from data on Thursday showing the number of Americans filing new claims for unemployment benefits held near a 15-year low last week.

The data helped bolster expectations for a relatively strong employment report. Economists forecast nonfarm payrolls to increase by 224,000 in April, after gaining 126,000 in March, when bad weather held back hiring.

"As always, unemployment and hourly wage growth should be taken into account, too," said Lutz Karpowitz, currency strategist at Commerzbank. "These series might be key for the market response if the NFP is in line with the expectations. Short euro/dollar positions do not really appear attractive today in the run-up to the labor market report."

(Additional reporting by Lisa Twaronite; Editing by Andrew Heavens)

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