Sterling steadies vs dollar as all eyes fix on US election

Sterling steadied around US$1.24 on Tuesday in nervous trade, with markets holding their breath as Hillary Clinton and Donald Trump approached the finishing line in a tight US presidential election race.
Sterling steadied around US$1.24 on Tuesday in nervous trade, with markets holding their breath as Hillary Clinton and Donald Trump approached the finishing line in a tight US presidential election race.PHOTO: AFP

LONDON (REUTERS) - Sterling steadied around US$1.24 (S$1.72) on Tuesday in nervous trade, with markets holding their breath as Hillary Clinton and Donald Trump approached the finishing line in a tight US presidential election race.

Last-minute jitters over the vote overshadowed news that Britain's Supreme Court was likely to rule early next year on parliament's role in Brexit. Last week, England's High Court declared parliamentary approval was needed to begin the formal process of leaving the European Union.

Data that showed an unexpected fall in Britain's industrial output in September but a pick-up in manufacturing growth took a backseat, too - the pound hardly moved on the data.

Having fallen 1 per cent on Monday as the dollar surged on growing expectations of a victory for Clinton - who is seen by markets as the status quo candidate - sterling was flat on Tuesday.

It had gained 3 per cent last week, its best performance in seven years, on the High Court's Brexit ruling, Mark Carney's announcement that he would stay on as Bank of England governor until 2019, on the Bank's scrapping its plans for rate cuts and on better-than-expected data.

"This short squeeze in sterling can continue, irrespective of what's going on in the United States, though the short-term view of cable (sterling/dollar) is going to be determined by what happens in the next 24 hours," said Societe Generale currency strategist Alvin Tan.

"The data that we've been getting has been quite decent, so I think there is definitely room for some pullback in euro/sterling." The euro was up 0.1 per cent against the pound at 89.16 pence .

US election polls have continued to put Clinton in the lead. But investors are mindful of the precedent of Britain's referendum on EU membership in June, which confounded the polls by delivering a vote in favour of quitting. "The problem is the market has been complacent in the not-too-distant past, having left itself very exposed to Brexit which resulted in some very aggressive moves in the early hours of June 24," Oanda senior market analyst Craig Erlam said in a note. "I don't think we're quite seeing the same level of confidence in the markets ahead of this election but still, it does appear we're quite vulnerable now to a Trump victory, which is not as ludicrous as the betting odds would suggest." Sterling is still down more than 16 per cent against the dollar since the Brexit vote in June. With memories of that unexpected outcome still fresh, traders are treading lightly.

A Reuters poll taken in the past few days found economists reckon sterling's plunge has brought the currency to the ideal rate for the British economy, albeit while stoking inflation - a challenge for a BoE that is keeping monetary policy loose in order to drive growth.