LONDON, Aug 28: Sterling was in the spotlight on Thursday as British Prime Minister Tony Blair testified before an inquiry into the death of a government scientist at the centre of a row over claims the government embellished the case for war in Iraq.

As Blair took the stand at the inquiry by senior judge Lord Brian Hutton, the British pound stood at $1.5711 against 1.5728 late on Wednesday in New York.

Meanwhile the single European currency bought $1.0872 from $1.0878 late on Wednesday.

The dollar was changing hands for 117.49 yen against 117.40.

Markets will be closely watching Tony Blair’s performance in front of the Hutton inquiry, said Adam Chester, economist at the British bank HBOS.

After Defence Secretary Geoff Hoon on Wednesday defended his role in the events that led to the apparent suicide of Dr David Kelly in July, the onus would be on Blair to mount a staunch defense, he added.

Failure to do so could put sterling under pressure, added Chester.

Kelly was named by the BBC after his death as the national broadcaster’s main source for a controversial report that the government “sexed up” a dossier used to justify war on Iraq.

But analysts were not expecting any long-term effect on sterling with Blair expected to keep his job for the time being at least.

We suggest Blair will seek a scapegoat to ensure his political survival, said Hans Redeker, chief currency strategist at BNP Paribas.

This scenario suggests some short-term market fluctuation but would not argue for a lasting increase of a sterling risk premium, added Redeker.

Dealers were also looking ahead to US economic data due later Thursday, notably weekly US jobless claims and second-quarter gross domestic product data.

According to a first estimate, US GDP rose by an annualised 2.4 per cent in the second quarter.

The euro was changing hands at $1.0872 from 1.0878 late on Wednesday in New York, 127.77 yen (127.70), 0.6923 pounds (0.6914) and 1.5399 Swiss francs (1.5378).

The dollar was being quoted at 117.49 yen (117.40) and 1.4164 Swiss francs (1.4139).

The pound was at $1.5711 (1.5728), 184.53 yen (184.66) and 2.2250 Swiss francs (2.2239).

On the London Bullion Market, the price of an ounce of gold stood at $371.35 against 371.25 on Wednesday afternoon. —AFP