LONDON: Sterling rose to its strongest since late 2007 against the euro on Thursday, bolstered by signs that the European Central Bank might have to plough on with outright money-printing far into next year or longer to restore growth to the euro zone.
In a volatile few minutes during ECB president Mario Draghi's post-meeting news conference, sterling fell then recovered to hit a more than 7-year high of 72.23 pence per euro.
That extends a run of losses for the single currency that most analysts believe should continue against both the dollar and sterling, given prospects of U.S. and UK interest rates rising at some point in the next year.
"The euro has been the driver," said Simon Smith, head of research at retail broker FX Pro. "I think Sterling versus the euro is looking relatively well supported. I see us moving towards the 70 levels in the next two to three months, though I don't think that level will come quickly."
Late on in London, sterling was up 0.4 percent at 72.31 pence per euro. Against the dollar it was a quarter of a percent lower at $1.5227.
The pound has been the best performing of the G10 group of major currencies over the past month, helped by a stream of better economic news that a rise in interest rates could come in sooner than expected.
Against that is the prospect of an election in May that currently looks unlikely to generate a clear majority for any party.
"The market is definitely in two minds on sterling at the moment," one senior hedge fund manager told Reuters at a SuMi Trust-backed meeting of London's Hedge Fund Association earlier this week.
"The City is very nervous about a Labour government, but I think people may be missing the point. If we get more leftist administrations across Europe in the next year to two years, they will spend more and we will get a boost for growth."
U.S. bank Citi's Head of European Economics, Michael Saunders said in a speech to the same gathering that whatever the makeup of a coalition after the election, the risks of UK budget policy that might scare the market were small.
"If Labour led the government I'd say you don't have to worry about high fiscal deficits but of course you do have to worry about the tax policies they choose to ensure that," he said. "I suspect that the policy uncertainty won't be resolved the day or the week after the election."
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