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Pound gets a leg up from Theresa May

Article By: ,  Financial Analyst
April 18, 2017 12:57 PM

It was sell the rumour and buy the fact for the pound after the “shock” announcement that Theresa May will call a snap general election on June 8th. This was always a possibility after she triggered Article 50, although she had denied she would call one. The latest YouGov poll on UK voting intensions gives the Conservatives the widest margin over Labour for 34 years, with the Conservatives polling 44% of the vote, in contrast to 23% for Labour. Who can blame Theresa May for calling an election that appears to be hers to lose?

Pound traders warming to Brexit?

The initial sell off in the pound was likely a bit of nervousness that Theresa May could be about to resign, once that fear was put to bed we have seen the pound surge to fresh highs above 1.2600, the highest level since early February. As we have seen with the Turkish lira, political stability is key theme that can drive currencies higher today, and pound traders obviously see PM May as a stabilising force. The market may also have changed its view on Brexit, after the massive pound sell off on the back of the referendum last year, today the market seems to be welcoming Theresa May’s decision to try and solidify her leadership at the helm of the UK’s Brexit mission. If the market is taking the view that it is better the devil you know, and with the odds massively in Theresa May’s favour that she will win this election, we could see the pound catch a bid as we lead up to June 8th, and our 1.30 forecast for GBP/USD doesn’t seem that outlandish.

Could a more moderate Labour also help sterling?

The pound may also be rising on the back of expectations that Labour will be obliterated by this election, which could drag the party away from the Far Left. At this juncture, one of the only risks to May’s leadership is if the Labour Party join forces with the Lib Dems as some anti-Brexit alliance, however, with less than 2-months’ to go before the election it is hard to see how any opposition to May can organise themselves to stand as a true challenge to the PM. Thus, this could be a fairly easy ride for Theresa May, and maybe for the pound too.

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