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UPDATE 1-Sterling clocks up gains towards $1.30 on election optimism

UPDATE 1-Sterling clocks up gains towards $1.30 on election optimism

* Graphic: World FX rates in 2019

* Graphic: Trade-weighted sterling since Brexit vote (Updates prices)

By Elizabeth Howcroft

LONDON, Nov 18 (Reuters) – Sterling inched higher towards $1.30 Monday on expectations the Conservative Party could win a majority in next month’s election and finally push through parliament the Brexit deal agreed with Brussels, paving the way for Britain to leave the EU on Jan. 31.

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Prime Minister Boris Johnson told the Telegraph newspaper in an interview published on Saturday that all 635 Conservative candidates standing to be lawmakers in the election on Dec. 12 would vote in parliament to pass the withdrawal agreement.

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Johnson’s Conservatives lead the opposition Labour Party by 10 to 17 percentage points, four polls showed late on Saturday.

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A poll published by Good Morning Britain on Monday showed the Conservatives with a 14-point lead

“Market’s just moving to price in a higher likelihood of a majority for the Tories,” Lee Hardman, currency analyst at MUFG, said, using a colloquial name for the Conservatives

“We’ve had the opinion polls at the weekend generally all showing increasing support for the Tory party, making the market more confident they could win a majority, seen as more favourable in the short term,” Hardman said

The pound was last up 0.5% against the dollar at $1.2972 after touching $1.2985 earlier, its highest since Oct. 22.

If sterling rises above the $1.3012 level hit in October, it would be at its highest since May

Versus the euro, the pound strengthened further to reach a new six-month high of 85.22 pence, last trading higher by 0.4% at 85.29 pence

The truth is, it’s probably a specific flow that’s driving it,” Jordan Rochester, FX strategist at Nomura, although he added that investor confidence in a Conservative lead was boosting the pound more generally

The $1.30 level is quite a strong psychological resistance here,” Rochester said. “For it to really have momentum, you need to see the Labour Party’s manifesto not do as well as it did in 2017.”

Labour is expected to release its manifesto on Thursday

Weekly futures data showed that positions betting against the pound versus the dollar fell in the week to Nov. 12 to the lowest levels since May. The net short position means that the pound has more potential to appreciate on good news than depreciate on bad news

In a note to clients, Ulrich Leuchtmann, head of FX and commodity research at Commerzbank, said that focusing on the pound versus the dollar gives a distorted impression of sterling, since even after Brexit the UK’s economic development will remain linked with that of Europe – its closest trading partner – and so sterling and the euro will be correlated

“That means GBP-USD strength is mainly a reflection of EUR-USD strength. If we want to know how GBP-specific effects work, we have to keep an eye on EUR-GBP,” he wrote

Reporting by Elizabeth Howcroft; Editing by Larry King and Alison Williams