Sterling touches more than 6-month peak against the dollar after PM May calls early election

PUBLISHED : Wednesday, 19 April, 2017, 4:35am
UPDATED : Wednesday, 19 April, 2017, 4:38am

Sterling rose to a more than six-month high against the dollar on Tuesday after British Prime Minister Theresa May called for an early general election, boosting hopes that a victory could strengthen her party’s majority in government ahead of Brexit negotiations.

May called for an early election on June 8, saying she needed to strengthen her hand in divorce talks with the European Union by bolstering support for her Brexit plan.

“The way the market is reading it, it is viewed as something that creates a more stable political outlook for Brexit to happen, which in itself is viewed as a positive,” said Alvise Marino, FX strategist at Credit Suisse in New York.

Sterling shook off early weakness to rise 2.7 per cent against the dollar to US$1.2904, its highest level since early October. The pound rallied hard late in the session after it topped the December high of US$1.2774, spurring short covering, analysts said.

“It was a technical move backed by a fundamental reason,” said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York. Sterling was last up 2.19 per cent to US$1.2836.

Analysts said the drop in US Treasury yields pressured the dollar, while US manufacturing output dropped for the first time in seven months.

US Treasury yields fell to five-month lows as nervousness ahead of France’s first round of presidential elections this weekend and ongoing geopolitical tensions increased demand for safe-haven US debt.

The dollar index, which measures the greenback against a basket of six major currencies, was down 0.76 per cent at 99.531.

Concerns about North Korea and the French presidential elections also pressured the dollar against the yen, which is traditionally viewed as a haven for capital in times of political and economic stress.

Against the yen, the dollar was down 0.35 per cent at 108.51 yen. The euro was 0.82 per cent higher at US$1.0727, having moved little on Monday, when many European markets were shut for the Easter holiday.

On Tuesday, Goldman Sachs abandoned the two strong dollar plays in its 2017 trading recommendations, pointing to the Trump administration’s concerns over the strength of the currency and improvement in growth in rival economies.

Investors were also watching ongoing US-Japan economic talks for signs of the direction US trade policy could take under President Donald Trump, who campaigned on a protectionist platform.