Sterling drifts higher ahead of central bank meeting

The British pound edged higher on Tuesday tracking some lingering overnight weakness in the greenback though election-related uncertainty capped gains. Weak PMI data on Monday also muted any expectations of policy changes from the Bank of England at a policy meeting this week.

The PMI data showed that construction shrank for the sixth month in a row in October - in line with expectations and reflecting a slowdown in growth due to political uncertainty before UK Prime Minister Boris Johnson's now-defunct Oct. 31 Brexit deadline. BNP Paribas economists, for one, expect the central bank's November policy meeting to be a neutral event for the pound.

"We maintain a structurally bullish stance on the currency, although, with uncertainty surrounding the outcome of the general election, we are patient," they said in a note. Against the dollar, the pound drifted 0.2% higher at $1.29 but remained well within recent trading ranges. Versus the euro, the pound was steady at 86.31 pence.

Leveraged funds that bet on the direction of sterling reduced their short positions on the pound in the week to Oct. 29 to $2.606 billion, a six-month low, according to CFTC data on Refinitiv. With just over five weeks until Britain heads to the polls on Dec. 12, the ruling Conservative party is leading in the polls and the risk of a "no-deal" Brexit is considered to have been reduced.

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