Sterling hits 3-month low vs euro as traders eye British election

LONDON: Sterling shed one percent against a broadly stronger euro on Wednesday, hitting a three-month low just a day before Britons vote in the most closely fought national election in a generation.

The pound has skidded around 4 percent in the past week against the euro, with dealers reporting many in the market finally opting to run short of the currency -- effectively betting it will fall -- ahead of Thursday's vote.

The euro has also been boosted by a sharp decline in the dollar as a run of weak U.S. economic data cast doubt on bets for an interest rate rise in coming months. In the latest knock to the greenback, U.S. private employers added the fewest number of workers in over a year in April, data showed.

The dollar fell 1.5 percent against the euro on Wednesday, but sterling managed only a half a percent gain against the greenback, trading at $1.5245.

Against the euro, sterling was down 1 percent at 74.47 pence , its weakest since Feb. 12.

"This does make a lot of sense, that the euro is outperforming sterling the day before a massively uncertain general election," said Hamish Pepper, a currency strategist at Barclays in London.

Some in the market, however, reckon that the uncertainty around Thursday's ballot -- which polls indicate will hand no party an overall majority -- should be weighing more obviously on the currency.

"This wasn't the move many were expecting a day before the election for sterling," said a spot trader at a bank in London. "Markets seem to be shrugging off uncertainty."

Banks have played up the importance of the issues at stake in the polls -- from the centre-left Labour Party's intent to clamp down on banks and big business to Prime Minister David Cameron's promise of an in-out referendum on EU membership if his centre-right Conservative Party wins.

A number of major international investors, however, say they see little immediate danger to Britain's relatively sound economic performance, even if both of the major parties' fiscal plans are likely to weigh on growth.

Earlier, sterling was given a small boost by a better-than-expected survey of purchasing managers in Britain's dominant services sector, which countered other signs that the economy was slowing down.