GBP crept up to €1.150 yesterday afternoon before dipping slightly to €1.148 this morning.
The rate climbed from lows of €1.140 on Sunday in the wake of the London Bridge terror attack.
Sterling has been boosted by a recent poll revealing Theresa May is 11 points ahead of Jeremy Corbyn in the race to the 2017 general election.
The Prime Minister’s Conservatives started their campaign with a comfortable lead but in recent weeks Labour has been closing the gap, which narrowed to as little as three points between parties.
A win for Theresa May in Thursday’s vote would be welcomed by investors who have bet on the long-term certainty of the government.
But fears of a hung parliament have rattled traders and experts warn the pound could take a tumble if a majority is not won this week.
YouGov’s latest seat estimate predicts that the Conservatives will win 305 seats, 21 short of a majority.
The pollster put Labour on 268 seats, the SNP on 42 seats and the Liberal Democrats on 13 – enough for a three-way coalition.
Kathleen Brooks, research director at City Index Direct, said: “The pound has made an impressive recovery in early trading after a torrid weekend and as we await Thursday’s General election result.
“While markets feel fairly confident that Theresa May will win on Thursday, any upset from this election could have a major impact on financial markets.
“We believe that a win for Labour, or a Labour-led coalition, would have the biggest negative impact on UK asset prices.
“We would also expect a short, sharp decline in sterling, as the FX market adjusts to a new political reality.”
Experts have agreed the exchange rate will likely be volatile over the next few days until the outcome of the election is revealed.
Laura Parsons, currency analyst at TorFX, said: “The pound returned from the weekend trading close to a two-and-a-half month low against the euro as mixed election poll results and Saturday’s horrific terror incident in London kept demand for GBP tepid.
“News that the pace of growth in the UK’s dominant services sector slowed in May added to Sterling’s woes.
“Although GBP/EUR rebounded slightly before the end of the day, with the outcome of Thursday’s election looking too close to call – according to some polls at least – the pound is likely to remain under pressure in the days ahead.”
