LONDON: The pound edged higher on Thursday as traders unwound some of their short bets against the British currency before a Group of 20 meeting this weekend, where U.S. President Donald Trump and Chinese President Xi Jinping might agree to a trade truce.
Risky assets including the pound were generally in demand with European equities higher and perceived safe-haven currencies such as the Japanese yen and the Swiss franc lower.
Traders also reported the presence of large options expiring around the $1.27 line over the next two weeks as having a upward push on the pound.
Against the dollar, the pound edged 0.2% higher at $1.2708 while against the euro, the pound was broadly steady at 89.48 pence.
Still, the pound was on track to be the worst performing currency this week as traders braced for more political uncertainty in the medium term.
"An increasing political risk premium is the clear driver, with the perceived risk of an early election continuing to creep higher," said Adam Cole, chief currency strategist at RBC Capital Markets.
Boris Johnson, the favourite to become Britain's next prime minister, took aim at his rival Jeremy Hunt, saying the governing Conservative Party would suffer if a new leader treated the Oct. 31 Brexit deadline as a "fake" target.
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