After a kneejerk move lower on headlines regarding a statement, Cable is surging now that UK PM May has surprised the nation with a snap election on June 8th... GBPUSD is at its highest since early Feb on the news
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As we detailed earlier, in a stunning development, Theresa May announced she would seek an early general election for Britain on June 8 to obtain a direct mandate to take the country through the Brexit divorce with the EU. The decision, which comes just three weeks after the prime minister began the formal Brexit process, has shocked British politicians as they returned from their Easter break.
That said, the announcement has come as two polls over the weekend put the Conservatives 21 points ahead of Labour, a lead that is likely to greatly increase its existing working Commons majority of 17, which hardly means a major shock for the general direction the UK is heading.
As Bloomberg notes, May will hope that the election will strengthen her hand when it comes to negotiating Britain's withdrawal from the European Union. However, in Brussels and across the EU, it is likely to be seen as merely adding to the unpredictability of relations with the U.K. Since June's referendum
May had previously said categorically that the next general election would be held as scheduled in 2020, and many Conservative backbenchers had shown little enthusiasm for a vote. “It isn’t going to happen. There is not going to be a general election,” her spokesman said on March 20.
As the FT notes, the prime minister is understood to have changed her mind after taking advice from senior figures including Sir Lynton Crosby, mastermind of the 2015 election campaign. Two polls over the Easter weekend put the Conservatives 21 points ahead of Labour, a lead that is likely to greatly increase its existing working Commons majority of 17.
Holding an election gives Mrs May an opportunity to win a direct mandate for the first time to be prime minister. She took power last July without a public vote, after David Cameron resigned and her remaining rival in the Conservative leadership contest, Andrea Leadsom, pulled out of the race. If Mrs May had remained in power without a vote until 2020, it would have been the longest a prime minister had served without an election since Winston Churchill during the second world war.
The Tories’ existing majority would have made it harder for the government to push through its Repeal Bill, which transfers EU legislation into the statute book, without significant amendments. William Hague, the former Conservative leader, was among those to have called for an early poll in an attempt to win a larger majority.
A general election will allow Mrs May may to ditch the 2015 Tory manifesto, and campaign on her own policies — including the opening of new grammar schools, which have been opposed by Tory moderates. Key policies from the Cameron era, including a commitment to spend 0.7 per cent of gross national product on international development, might also be changed.
Neil Jones, Mizuho Bank's head of FX sales for financial institutions, one of the first sellsiders to respond, says that an election in two months may not be bad for the pound with May likely to win.
"My guess is, she's calling for an election now rather than later as if she goes later, she's very likely to achieve less votes."
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Watch her announcement live on Sky News:
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Having risen as high as 1.26, cable tumbled earlier today following news that U.K. Prime Minister Theresa May was scheduled to make an unexpected announcement. The currency erased an earlier gain versus the dollar, falling nearly 100 pips, down 0.3% from the highest level in three weeks.
While the contents of the announcement are for now unclear, the BBC's top political commentator reports that May could announce a general election on June 8:
- MAY COULD ANNOUNCE GENERAL ELECTION FOR JUNE 8TH: BBC
Specifically, BBC’s Laura Kuenssberg says in Twitter post that Theresa May could announce a General Election for June 8th, citing one unidentified person familiar, although she stresses source “not confirmed”
“There is heightened speculation that there could be a snap election in the U.K.,” said Jane Foley, a senior currency strategist at Rabobank International in London quoted by Bloomberg. The pound’s fall was due to “purely uncertainty at this stage. Financial markets don’t like uncertainty and an election does raise the risk that she may not win and there may be another bout of relative chaos in the U.K.”
If so, expect even more political fireworks out of Europe, potentially leading to a much stronger sterling, on speculation that the entire Brexit process may soon be undone.