LONDON: Sterling rose against the dollar in nervous trade on Tuesday as Hillary Clinton and Donald Trump approached the finishing line in a tight US presidential election race.
Last minute jitters over the vote overshadowed British industrial output data that showed an unexpected fall in September, while manufacturing growth picked up.
The pound was up to $1.2413, regaining some of the ground it lost on Monday, when the dollar surged on growing expectations of a victory for Clinton, seen by markets as the status quo candidate.
Polls have continued to put Clinton in the lead. But investors are mindful of the precedent of Britain's referendum on EU membership in June, which confounded the polls by delivering a shock vote for Brexit.
"The problem is the market has been complacent in the not too distant past, having left itself very exposed to Brexit which resulted in some very aggressive moves in the early hours of June 24," Oanda senior market analyst Craig Erlam said in a note.
"I don't think we're quite seeing the same level of confidence in the markets ahead of this election but still, it does appear we're quite vulnerable now to a Trump victory, which is not as ludicrous as the betting odds would suggest."
Sterling climbed almost three percent last week, its best weekly gains in seven years as the dollar was hit by signs that a Trump victory might be on the cards. But Clinton got an eleventh hour boost on news she would not face criminal charges related to her use of a private e-mail server.
"The bigger picture is still that the UK economy is holding up better than expected following the Brexit vote," said Bank of Tokyo-Mitsubishi UFJ currency economist Lee Hardman in London.
"That's obviously a positive development for the UK economy but it's offering fairly limited support for the pound as the FX market is in a holding formation ahead of US election results which remain the pivotal driver."
Politics have dominated recent currency moves, with the pound's rally last week also supported by a High Court ruling that the government needed parliamentary approval to start the process of Britain's divorce from the European Union.
Sterling is still down more than 16 percent against the dollar since the British vote in June to exit the EU. With memories of that unexpected outcome still fresh, traders are treading lightly.
A Reuters poll taken in the past few days found economists reckon sterling's plunge has brought the currency to the ideal rate for the British economy, albeit while stoking inflation - a challenge for a BoE that is keeping monetary policy loose in order to drive growth.
Against the euro, the pound was flat at 88.98 pence.
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