A boost for European markets from France was not enough to drive sterling on Monday, with the British currency trading in tight ranges as domestic attention focused on this week's Bank of England meeting and an accelerating election campaign.
The pound has gained more than 3 percent since Prime Minister Theresa May called a surprise early national vote three weeks ago for June 8, reflecting hopes among investors it will give her a stronger hand to compromise in Brexit talks. Yet that recovery has stalled in the past week, even as May's Conservatives won a decisive victory in regular local council elections on Thursday.
The Bank of England meets on Thursday, with analysts expecting it to have drawn some comfort from sterling's rise over the past month. The Bank surprised markets earlier this year by delivering a hawkish message on the chances of rises in interest rates, generally read as reflecting concern that further falls for pound would boost inflation and weaken consumer spending power.
With the currency stronger, it should feel freer to let forecasts for inflation over the next two years drift above its 2 percent target without taking away some of the emergency monetary support it has put in place for growth, analysts said.
The removal of the political risk investors had associated with Le Pen - who had promised to take France out of the euro - prompted investors to refocus on economic fundamentals and the pace of monetary policy normalisation in Europe and the United States. Short positions on the euro reached their lowest level since early May 2014 in the week up to last Tuesday, data showed from Friday.