What a difference an hour makes.
Having suffered a sharp lurch lower, the pound is now riding high against the dollar at a 10-week high after prime minister Theresa May said she will seek a snap general election on June 8.
Sterling is up 1.5 per cent against the dollar on the day, wiping out a brief 0.3 per cent fall, to hit $1.2749 at publication time.
The pound had dipped on speculation of an election earlier this morning but has now smashed through its 200-day moving average for the first time since the Brexit vote last June. Tuesday’s bounce is its best single day jump in three months.
Standing on the steps of Downing Street today, Ms May said she had come to a “recent and reluctant” decision to call the vote to strengthen her mandate in the UK’s EU exit talks.
Recent polls suggest the Tory party will win a comfortable 46 per cent vote share. Investors are betting that a strengthened mandate will hand Ms May a surer political footing on which to carry out the UK’s two-year EU year exit talks.
“[This] should lower the risk of a very disruptive Brexit as the government should be able to plot a less confrontational exit from the EU”, said Mike Amey, head of sterling portfolio management at Pimco.
“The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit” said Luke Bartholomew at Aberdeen Asset Management.
“That would be welcomed by financial markets.”
Chart via Bloomberg