LONDON, July 17 (Reuters) – The pound slipped on Friday but
was on track for its third consecutive weekly rise, with UK
assets supported in recent days by reports that incoming prime
minister Andy Burnham has chosen a centrist to be finance
minister.
Sterling was last down 0.2% at $1.345, as it gave back
some of its sharp gains on Wednesday and as the safe-haven U.S.
dollar found some support from ongoing strikes in the Middle
East.
Yet it remained set to rise 0.4% this week after rallying on
Wednesday when newspapers, including the Financial Times,
reported that Burnham was likely to pick Shabana Mahmood as his
finance minister over the more left-leaning Ed Miliband.
Traders took news of the likely appointment as a sign that
Burnham, who is set to become leader of the governing Labour
Party on Friday and prime minister next Monday, is not planning
to ramp up spending as some investors had originally feared.
Government bonds rallied along with the pound, which has
also been helped by a dip in the dollar this week.
“UK political developments have shifted from a headwind to a
tailwind, with an orderly leadership transition and expectations
of a fiscally prudent chancellor boosting market confidence,”
strategists at UBS Wealth Management said in a research note.
The pound also retraced some of its recent rally against the
euro on Friday, with the common currency up 0.15% to
85.03 pence.
Yet the euro was still on track for its fourth straight weekly
decline against the pound, with sterling helped by greater
political certainty and better-than-expected UK growth figures.
However, ING currency strategist Francesco Pesole said the
pound looked somewhat over-valued after rising to a 13-month
high against the euro.
Pesole said British bond yields could fall, knocking the
attractiveness of the pound, if markets scaled back their bets
for around 35 bps of Bank of England rate hikes this year, which
he said looked too high.
