Holiday spoiler alert; Theresa May’s election call sends sterling to a six-month high against the dollar

PUBLISHED : Wednesday, 19 April, 2017, 11:29am
UPDATED : Wednesday, 19 April, 2017, 10:34pm

Holidaymakers planning to visit Britain in the near future were dealt some bad news on the currency markets on Wednesday as sterling rose to a six-month high against the US dollar after British Prime Minister Theresa May called a snap election for June 8.

Sterling shot up as much as 2.7 per cent hours after May made the announcement, with the pound trading at US$1.2904 per dollar, the highest level since October 3. The pound gave back some of the gains to trade at US$1.2831 in the evening in Asia on Wednesday.

Against the Hong Kong dollar, sterling was quoted at HK$9.9931 on Tuesday evening, before paring the advance to trade at HK$9.9752, a six-month high. Hong Kong’s US-dollar-pegged currency tracked the declines against sterling in lockstep with the greenback.

Currency traders said May was seeking to turn her lead in the opinion polls into a successful election result and express a Conservative Party vision in the coming Brexit negotiations.

“If the election result is a victory for Theresa May, it will strengthen the British government and help to ensure she can lead the country to negotiate for better terms for Britain in talks with the European Union,” said Ben Kwong Man-bun, a director of KGI Asia.

Kwong said the strength of the pound was also due to the weakening of the US dollar which also fell against the euro.

“The trend may well stay for a while as there is no good economic news in the US that can help boost the dollar. The pound and euro may stay relatively strong,” he said.

Jeffrey Halley, a senior market analyst at Oanda, said the election news had helped to shatter the pound’s entrenched downtrend against the US dollar.

“The initial reaction seems to be one of positivity that a strong mandate through Brexit negotiations and reduced uncertainty will be good for the pound,” Halley said.

“The pound should remain supported though against the euro, as the street prices in the French election [which] is a more immediate problem than a British one,” he said.