Sterling steadies above $1.41

LONDON: Sterling steadied above $1.41 on Tuesday after posting its best day against a weakening dollar at the start of the week, buoyed by market relief over the Scottish election results, improved economic forecasts, and lockdown easing measures.

Analysts say the election outcome - in which the Scottish National Party did not secure an outright majority - was a relief for the currency, which had been trading away from its fair value against the euro owing to the election uncertainty.

Pro-independence parties together won a majority in Scotland's parliament on Saturday, which Scottish leader Nicola Sturgeon said gave her a mandate to pursue plans for a second independence referendum.

Any second referendum on Scottish independence requires the approval of the British government and Prime Minister Boris Johnson has ruled this out.

"As we have argued previously, the Scottish elections were not supposed to have a long-lasting negative impact on the pound and the pound rally yesterday provided a case in point," said Petr Krpata, chief EMEA FX and IR strategist at ING.

"With the UK government confirming the next step of the reopening of the economy, the solid UK data points this quarter should benefit sterling."

By 1525 GMT, sterling was 0.2% higher against the dollar at $1.4152, just shy of the 2-1/2-month peak of $1.4158 hit on Monday.

Against the euro, the pound traded 0.1% lower at 85.97 pence, off a one-month high of 85.88 pence per euro touched on Monday.

"Euro-sterling moved a full figure lower yesterday to below 86 pence, as investors moved beyond the Scottish Parliament election," said Mikael Olai Milhøj, chief analyst at Danske Bank. "Another Scottish independence referendum is far away and hence not something markets will trade on near-term." Sterling is the third best performing G10 currency against the US dollar year-to-date, trailing the commodity-linked Norwegian crown and the Canadian dollar. As of the end of Monday, sterling was up 3.4% this year against the greenback.