As most sterling watchers are aware, since the surprise Brexit election results in June 2016, the illustrious pound has been sulking in the 1.14 range against the euro, and 1.24 range to the US dollar.
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Economic data and geopolitics raised and lowered the pound in past months. But on 18 April, the pound rolled out of its slumber and rose up again with Theresa May’s announcement of a snap election in early June.
Setting the scene… May’s announcement was unexpected, particularly after she repeatedly suggested she would not see a special election. Polling out earlier in the week indicated strong support for her Conservative Party. It now appears that she and the UK Government believe a convincing win in June would strengthen the UK’s position in Brexit negotiations.
The pound’s reaction has been quite positive. Excellent news for UK expats living in the euro zone and holding pounds at home.
Yet, why the great shift in the rate?
If you listen to Chancellor Philip Hammond, he said the increase showed the “confidence that the markets have in the future of the country, under a Conservative government with a new mandate.”
Deutsche Bank, one of the world’s largest holders of sterling, called the snap election “a game-changer” for the Pound. The bank indicated that, in the coming days, it would raise its sterling forecasts.
Premier FX Chief Executive Peter Rexstrew’s view at the moment…
“The early effect on sterling has been good, making good progress against the US dollar and the euro. Is 1.20 a possibility? Of course, but we do not falter that if we do get there, it won’t be there for too long. If sterling rises against anything significantly it will be the US dollar and 1.32-1.35 is not impossible.”
Further, Rexstrew believes, once the dust settles, we may see the pound fall away again. “Uncertainty will always be the key and the market may perceive the political situation as weakness. It remains to be seen.”
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This article was written on the 20th of April, 2017.