LONDON: Political worries trumped good economic news for sterling on Wednesday, sending it down against the dollar and the euro ahead of a seven-way TV debate between Britain's party leaders the following day.
Data showing Britain's manufacturing sector grew at the fastest rate in eight months in March gave the pound only brief respite. By 1005 GMT it was trading half a percent lower against the dollar at $1.4744.
The latest opinion polls before Britain's May 7 election point to a hung parliament, in which no single party can form a government on its own, leaving open the possibility of a whole range of coalition agreements.
Two-month implied volatility, which investors can buy to hedge themselves against big price swings in sterling's exchange rate over the election and in the three weeks after it, remained close to a 3-1/2-year high hit the previous day of 13.2 percent.
"At the moment there are too many (political) uncertainties," said Simon Smith, director and chief economist at online broker FxPro.
"And the way the Bank of England is looking at the moment, there's no anticipation of any change in policy so it's got that much harder for the data to have any effect on the currency."
The manufacturing data followed strong final GDP data on Tuesday, which showed Britain's economy expanded at a quarterly 0.6 percent in the last three months of 2014, revised up from a previous reading of 0.5 percent.
That gave a small boost to the pound on Tuesday, which hit a one-week high against the euro. Sterling has struggled in the past few days on growing expectations that the Bank of England will keep interest rates lower for longer as well as growing investor jitters over the election.
On Wednesday sterling was down 0.4 percent against the euro at 72.745 pence.
The inclusion of seven parties in Thursday's debate, including the anti-EU UKIP, is seen as a sign of just how fragmented Britain's political landscape has become.
"Focus on politics (is) likely to continue to intensify into Thursday's debate (and) could act as a drag on sterling given anticipated volatility," wrote Citi FX analysts in a note.
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