Sterling flirts with three-month high vs euro

LONDON (Reuters) – Sterling inched towards a three-month high versus the euro and a one-month high against the dollar as the more positive mood on broader markets encouraged investors back into currencies considered riskier during uncertainty.

Analysts say with the conclusion of the Conservative Party leadership contest that will decide the next British prime minister not due until September and investors waiting for the Bank of England monetary policy meeting next Thursday, there have been few domestic drivers for sterling in recent weeks.

Instead, sterling has benefited from a pullback in the dollar and a euro still struggling under the weight of imminent shortages of natural gas and a weakening economy.

By 0740 GMT, the pound was up 0.1% at 83.79 pence, close to the 83.75 pence level hit on Wednesday that was the highest since May 2.

Versus the dollar the British currency was little changed at $1.2161, close to a one-month high reached on Wednesday.

“With the exception of some headlines about campaign pledges by (Conservative Party leadership contenders) Liz Truss and Rishi Sunak, there simply isn’t much that markets are looking at in terms of domestic drivers for GBP,” ING analysts said.

“Expect cable to keep being driven by the dollar and EUR/GBP to be driven by the euro. We think GBP/USD is still at risk of a return to or below $1.2000 in the coming weeks, while EUR/GBP may stay around 84 pence but is facing downside risks due to uncertainty over Russian gas supply.”

(Reporting by Tommy Reggiori Wilkes; Editing by Alison Williams)