Sterling falls vs euro to 7-week low ahead of Scottish election

Joice Alves
·2 min read

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv

By Joice Alves

LONDON, April 16 (Reuters) - The pound slipped against the euro on Friday to its lowest level in seven weeks and was on track for its second consecutive week of losses against the common currency, with analysts attributing the fall partly to an upcoming Scottish parliamentary election.

After a strong first quarter, helped by a speedy rollout of vaccinations against COVID-19 across the United Kingdom and by dwindling expectations of negative interest rates, sterling had a weaker start to April.

While traders weighed indications of how Britain's re-opening of shops would affect the economic recovery, they also said investors had turned more cautious ahead of the Scottish parliamentary election on May 6.

The Scottish National Party (SNP) is expected to perform well again and has vowed to push for a second referendum on independence from the United Kingdom if it wins a majority in the Scottish parliament.

"Some attribute the position lightening to the positive UK vaccine news being fully discounted, though we remain unconvinced by this explanation alone. More likely is that sterling is being impacted by a dose of political risk ahead of the May 6th Scottish election," said Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets.

ING analysts said that investors have been reluctant to jump back into GBP longs ahead of the election, "where appetite for independence will be assessed".

In early London trading, the pound fell versus the euro to 87.18 pence, its lowest level since February 26. It was down 0.3% to 87.10 pence at 0840 GMT.

Versus a weakening dollar, it fell 0.2% to $1.3747, but it was set for weekly gains, after ending its worst week of the year against the greenback last Friday.

England re-opened all retail stores, hairdressers, gyms and pub gardens on Monday. Scotland, Northern Ireland and Wales are due to re-open different sections of their societies in coming weeks. (Reporting by Joice Alves Editing by Gareth Jones)