Sterling rose to a 10-day high against the US dollar on Friday as Brexit Party candidates stood down from over 40 seats not held by the Conservative Party, which traders saw as a move that would help the Conservatives gain a majority in the upcoming UK elections.
The pound has been rising in the past week as polls suggested Prime Minister Boris Johnson's Conservative party could win a majority at the Dec. 12 election, which is seen as increasing the chances of the UK leaving the European Union with a deal on Jan. 31.
The Brexit party has stood down from 43 non-Conservative seats, 11 of which are held by the main opposition Labour Party and 17 of which saw the Conservative Party finish in second place in the 2017, according to a Telegraph reporter.
Sterling rose 0.2% to $1.2919 and was on track for gains of around 1% since last Friday.
"It's a combination of dollar weakness and the political backdrop playing out," said CIBC Capital Markets head of G10 FX strategy Jeremy Stretch.
A poll conducted after the Brexit Party said it would not stand in Conservative-held seats earlier this week put the Conservatives at 43%, up 3 points from a poll last week. Labour was unchanged at 30%.
Versus the euro, the pound was little changed at 85.59 pence. It had reaching six-month highs in late London trading on Thursday after two Brexit Party leaders announced they were not going to run.
Johnson repeated his intention to "get Brexit done" on Friday, saying the UK needs to come out of regulatory alignment with the EU and that it has "bags of time" to negotiate a free- trade deal.
Meanwhile, Labour said it would nationalise parts of telecoms provider BT's network if it won power in the Dec. 12 election to provide free full-fibre broadband for all. BT shares fell to the bottom of the FTSE 100 index.
"At present, sterling benefits from anything that lowers Labour's chances of winning the election," Commerzbank's head of FX and commodity research, Ulrich Leuchtmann, wrote in a client note.
But election news may be distracting from broader market pessimism about sterling's long-term outlook. The UK will have just 11 months to negotiate a trade deal with the EU next year before a transition period comes to an end.
Data this week has also been weak, with UK retail sales falling unexpectedly in October.
"My concern is - and this is something possibly the market has thought about - that we've got preoccupied with the election but there is still a lot of uncertainty post-election," said Neil Mellor, senior currency strategist at BNY Mellon.