Pound on the up as Conservative poll hopes grow

The pound was on course for its first monthly gain against the dollar for six months — up 0.25 cents to $1.5345 — amid signs the Tories could secure an overall majority in the general election.

Government bonds also edged higher, pushing gilt yields down, after polls showed Tory leader Cameron beat Nick Clegg and Gordon Brown in last night's televised debate on the economy.

The Tories have pledged to start cutting government spending immediately if they win next week's vote, while Labour and the Liberal Democrats do not plan to take action until 2011.

Mark Schofield, head of interest rate strategy at Citi, said: "The Conservatives are getting close to levels that could given them a majority and we could be moving away from a hung parliament. In that case, the market expects a significant fiscal tightening and a big rally in gilts."

Fears that the vote on May 6 would produce a hung parliament and a government too weak to tackle the record budget deficit have weighed heavily on sterling in recent weeks.

The pound was trading at around $1.70 just six months ago when the Tories were well ahead in the polls, but sank to $1.48 last month as the lead evaporated. Polls today showed the Cameron lead growing once again.

Lee Hardman, a foreign exchange strategist at Bank of Tokyo Mitsubishi in London, said: "Sterling is rising as the probabilty of a majority Conservative government has increased after Cameron's performance. A majority government will give a short relief rally to the pound."

The yield on 10-year gilts — how much it costs Britain to borrow on international money markets — fell two basis points from 3.95% to 3.93%.

Yields on two-year bonds benefited even more, falling almost five basis points to 1.18%.