* Pound reverses earlier YouGov projection losses
* Panelbase poll shows Conservatives in lead
* Euro climbs to 3-day high
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, May 31 Britain's pound recovered from a
half a percent drop on Wednesday after a poll showed the
country's ruling Conservative party still in the lead,
overriding a previous projection of a hung parliament in
elections next week.
Research company Panelbase said Prime Minister Theresa May's
lead over the Labour Party increased to 15 points, giving the
pound some respite from a plunge on a YouGov projection that
showed her Conservatives failing to secure an overall majority
in the June 8 vote.
Sterling was 0.2 percent lower on the day at $1.2836 by noon
in London, recovering from a low of $1.2770 hit in
morning trade. It remained half a percent lower at 87.38 pence
The pound has reversed nearly half of its 4 percent gain
since May called the election, her narrowing lead in polls
weighing on investors' expectations of a landslide victory for
the Conservatives, which has been pitched as strengthening May's
hand in Brexit negotiations.
"To the extent to which this cautious, value-chasing long
sterling position has been caused by the prospect of ... a
higher Tory majority - this investment premise is now fading,"
said Petr Krpata, currency strategist with ING in London.
Barely reacting to euro zone inflation data that came in
below expectations, the euro ticked up to a three-day peak of
Investors are turning positive on Europe's economic
prospects after an ebbing of political risk from centrist
Emmanuel Macron's French presidential election win.
They are also awaiting clues from the European Central Bank
on whether it will begin to wind down its bond purchase
programme in light of signs that the euro zone economy is
But ECB President Mario Draghi on Monday repeated the need
for "substantial" stimulus.
"Outperforming European risk assets are a key currency
driver, to some extent confirmed by foreign investors having
stressed that they're starting to increase their allocations to
Europe," said Manuel Oliveri, currency strategist with Credit
Agricole in London.
"Weak inflation is keeping the ECB rather capped in terms of
rate expectations while improving growth momentum is actually
supporting risk assets. That's why the euro has lost some kind
of sensitivity to downside surprises in inflation."
The dollar index which measures the currency against
a basket of peers, fell 0.2 percent to 97.082, holding above
last week's 6-1/2-month low of 96.797.
The U.S. currency was 0.1 percent weaker at 110.815 yen,
staying within recently traded ranges.
Investors' concerns that investigations into President
Donald Trump's ties with Russia could hamper his
administration's progress on tax cuts and other promised
stimulus measures have undermined the dollar in recent weeks.
Consumer spending in the United States recorded its biggest
increase in four months in April and monthly inflation
rebounded, pointing to firming domestic demand that could allow
the Federal Reserve to raise interest rates in June.
But some market participants say signs of softness in some
economic data have raised questions about whether the Fed can
hike interest rates two more times this year and begin shrinking
its balance sheet.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Ritvik Carvalho; additional reporting by Tokyo
Markets team; Editing by Jeremy Gaunt)