Stellar Sterling after UK Election Announcement

GBPUSD, Daily                 

Theresa May, the UK Prime Minister, earlier shocked markets and commentators with the announce of a snap UK General Election scheduled for in a little over  seven weeks for June 8. The UK has a five year fixed term election cycle and the next scheduled general election would have been in 2020. The PM needs a two-thirds majority of the UK Houses of Parliament to proceed. This is almost guaranteed as the official opposition Labour party have welcomed the announcement and will vote in favour of the June 8 election.

Also today the IMF upped its UK 2017 growth forecast to 2.0% from the 1.5% it forecast in January, also lifting the 2018 projection to 1.5% from 1.4%. The IMF had been forecast 2017 growth of 2.2% before the Brexit vote last June before subsequently slashing its projection to 1.1% growth in October. The organisation noted increased trade, investment and manufacturing activity. The IMF still said that the UK’s medium-term growth prospects have “diminished in the aftermath of the Brexit vote because of the expected increase in barriers to trade and migration.”

The robustness of the UK economy since the Brexit referendum would have been a key reason behind PM May’s decision to call a snap general election as she seeks a strong mandate and larger parliamentary majority heading into negotiations. That and the evident disarray of the opposition. She appears to be “Calling the Bluff” of both opposition leader Jeremy Corbyn’s Labour Party and the Scottish National Party leader Nicola Sturgeon, who had both campaigned for a Remain vote in last year’s referendum (along with Mrs. May herself).  It also appears to outmaneuvere the SNPs campaign for a second independence vote. However, time will tell if this is a clearing of the air for the PM and delivers her a stronger mandate for the ruling Conservative party or a big political miscalculation, similar to the one her predecessor made.

Sterling is showing a 1.4% gain on the dollar, although a little off its 1.2743 peak, which is the highest level seen since the December-4 peak at 1.2774, and which is in turn a six-month high. The pound is showing a 1.2% gain when averaged against the G3 currencies.

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Stuart Cowell

Senior Market Analyst


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