This morning Theresa May has announced there will be a snap general election on the 8th of June. Earlier we knew she would be making an announcement and there were rumours that it could be a Royal issue or even her stepping aside due to health issues.
Due to the uncertainty, Sterling fell quite sharply by around 1%. The rumours of her calling a snap election proved to be correct, and once she made the announcement, the Pound bounced back and currently sits close to €1.19 vs the Euro, much higher now than when markets opened.
Why has the Pound risen on the election news?
I think it makes sense politically and certainly the currency markets have reacted positively with the Pound rising a cent. There were fears that due to the French and German elections, the Brexit negotiations would have been delayed and the crucial climax would have been overshadowed by the general election. She is taking the gamble that she will win a landslide majority, clearing the way to have a firm base and mandate from the UK electorate for the next 5 years, well beyond Brexit. It’s likely that she will now find things much easier domestically assuming she wins a majority. The problem is that the election will probably now be fought on a ‘Stop Brexit’ platform by the Lib Dems, who could garner support from ardent remainers. Currently the conservatives have a healthy lead over Labour and the Lib Dems, so it’s likely her gamble will pay off. I expect the Lib Dems to make Brexit their main issue however, and will probably run their campaign on a platform of reversing the decision to leave the EU, however that’s impossible as I understand it.
For the currency markets, despite an initial drop the Pound has recovered and is now sitting at pretty healthy levels against the Euros, very close to the best we’ve seen since the referendum. Political events over the next few months will now be key. We have French elections starting next week, a UK general election in less than 2 months, and German elections later in the year.
It could be a very volatile time ahead for the Pound, and those that need to exchange currency should get in touch to discuss the ways in which we can help protect our clients against adverse exchange rate movements, and help you achieve rates of exchange that are usually much better than your bank or existing broker may offer.