LONDON: Sterling fell sharply against the euro on Monday as investors favoured Europe's currency over Britain's in a wave of relief sweeping financial markets following results of the first round of France's presidential election.
The pound rallied nearly 2 percent last week, hitting four-month highs against the euro, after British Prime Minister Theresa May called for a UK general election in June.
But as centrist candidate Emmanuel Macron and far-right Marine Le Pen advanced to the second round of France's presidential race, the euro was bought broadly as investors shrugged off worries that Le Pen - who has threatened to pull France out of the euro zone - would take the presidency.
That move also pushed sterling lower, the pound reversing nearly all of last week's gains versus the euro overnight and last trading at 84.76 pence per euro, down 1.2 percent.
Against the dollar, sterling was not far off highs hit last week following May's election announcement, down less than 0.1 percent on the day at $1.2805.
"I can't say we have many local drivers at the moment (for sterling-dollar) really...the main volatility is coming from euro-sterling and that is mainly euro-driven," said Thu-Lan Nguyen, currency analyst with Commerzbank.
She said economic data would be an important driver for sterling. The UK economy's relative resilience to the uncertainty generated by last year's Brexit referendum has propped up the currency this year following a near one fifth slide. But doubts, particularly over consumer demand,are growing, fuelled by another poor batch of retail sales numbers on Friday.
Preliminary first quarter gross domestic product data are due on Friday.
Eyes will also be on the start of campaigning for Britain's general election, with polls showing May's ruling Conservative Party has a comfortable lead over the opposition Labour Party.
The Conservative Party's election manifesto will focus on Brexit and domestic concerns, such as strengthening the economy and putting a cap on energy prices, Work and Pensions minister Damian Green said on Sunday.
Jeremy Corbyn, the leader of the Labour Party, said on Sunday he could suspend British involvement in air strikes against Syria if he was elected prime minister.
"The June 8th UK election has been overshadowed by events in France," ING currency strategist Chris Turner wrote in a note to clients.
"EU politicians have been quick to make clear that a few extra Conservative back benchers don't guarantee May a better Brexit deal. Euro-sterling held the range low at 83 pence last week and should stay supported. Cable supported by euro-dollar."
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