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By Bloomberg

Concerns over the U.K. election forgotten, the pound has become a favorite of foreign-exchange strategists who are predicting a surge to the highest level versus the euro in more than seven years.

Sterling is set for a weekly gain versus the single currency, and the median forecast in a Bloomberg survey sees it climbing to 70 pence per euro this year, a level last seen in 2007. Markets have brought interest-rate increases back into sight, helping the pound recover all of its losses in the two months before the May 7 vote.

“The election is gone now, it allows us to get back to watching the economic data,” said Steven Saywell, global head of foreign-exchange strategy at BNP Paribas SA in London. “We put out a trade recommendation to start building sterling exposure. We like it best against the low-yielding European currencies -- the euro or the Swedish krona.”

The pound has climbed 2 percent this week to 71.31 pence per euro as of 1:46 p.m. in London, even as it dropped 0.5 percent on Friday.

Britain’s currency has fallen 1.2 percent this week against the dollar to $1.5545, though that follows a 3.8 percent jump over the previous two weeks, its best back-to-back gain in six years.

On a trade-weighted basis, the pound appreciated to the strongest level since August 2008 on Thursday. Sterling had been weighed down by concern the election would be the closest-run in a generation and result in no clear winner.

Higher Rates

The pound will rise to 68 pence per euro by year-end, Saywell predicted. He said traders are underestimating policy tightening from the Bank of England, which BNP Paribas expects to start in February 2016 amid improving wage data. Markets aren’t pricing in the first rate increase until next July.

Morgan Stanley analysts said Britain’s currency is in a “strong position” and recommends a long position, or a bet it will strengthen, against the euro. UBS Group AG, the world’s biggest wealth manager, is selling Australia’s dollar versus the pound for its clients.

Weak Inflation

BOE Governor Mark Carney said Friday weak inflation means policy makers are “mindful” of “the persisting drag from sterling strength.” Growth in consumer prices has slipped below zero for the first time in more than half a century.

Even so, the central bank has said it expects prices to pick up by the end of the year and data this week showed a surge in retail sales in April that wiped out a drop the month before.

Against this backdrop, Royal Bank of Scotland Group Plc says the pound is the best investment of the major currencies.

MacNeil Curry, a technical strategist at Bank of America Corp. in New York, said in a note that investors who are bearish on sterling are making a mistake, and that unless it falls below the five-week trendline of $1.5484, the currency will follow an upward trend.

Steve Barrow, head of Group-of-10 strategy at Standard Bank, sees the pound appreciating past 70 pence per euro -- and staying there.

“The election lifted the pound because the result was totally unexpected,” Barrow said. The “disarray among opposition parties” may continue to support the currency longer term, he said, by helping the Conservative Party “go on to reap more electoral benefits in the future.”