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What does the general election mean for the pound?

British PM, Theresa May surprised the markets on Tuesday morning by announcing a snap general election in June. The instant reaction to this was the Pound rising by around 3% across the board, which I am sure many of you were happy to see! Tuesday was, in fact, the best day Sterling has had since the EU Referendum took place!

The Pound since has managed to hold on to these gains with the GBPEUR rate still above 1.19 and GBPUSD still above 1.28.

The reason why the Pound strengthened following this news was that investors expect the Tories to win this election by a landslide, and will have a significantly larger majority in Parliament. Another reason is that following this election (Providing May wins), she should have a stronger position in Brexit negotiations, there has been plenty of criticism of her as she wasn’t technically voted into 10 Downing Street, so this vote could strengthen her position in a big way and shows the majority of the UK is behind her as a leader, as well as Brexit.

With that said, the big question really is if this strength will continue… it seems that opinion polls are already showing that the Conservatives have a 21 point lead, however as I always say, take these opinion polls with a huge pinch of salt as they really cannot be accurate prior to any electoral campaigns starting. Jeremy Corbyn seems to have plenty of support from the youth and the Lib Dems will campaign on an anti-Brexit platform, which may entice many previous remain voters. So though this seems like a one horse race at the moment, do expect volatility as debates happen and campaigns unfold.

I have listed below the main factors that I feel can influence the Pound over the next couple of months;

1. French Elections– The reason why I feel this is important is because all opinion polls are showing that this is wide open, with at least 2 candidates who are deemed to be a risk for the Euro. We will see the results of the first round this weekend, and the top two candidates will go through to the final round on 7th May. It is important to know that if we see a Le Pen or Melechon win then this could weaken the Euro, and if we see Macron or Fillon win then this would probably put strength back into the Euro.

2. Brexit Plans- Theresa May might take the elections as an opportunity to reveal more of her plans in regards to Brexit, which as we know always move the market. The more important factor I believe is the EU’s first “Brexit Summit” on April 29th, which will give us a better insight into how Europe will move in the negotiations.

3. The Bank of England- Central Banks always have high priority when it comes to currency movement, but the main reason I see the BoE as one of the main factors at the moment is due to the rising of inflation in the UK, it seems that the UK will need an interest rate hike at some point and the Governor- Mark Carney, will have to comment on this at some stage, an imminent hike is good for the Pound, but a delayed one will see the Pound weaken.

4. UK Politics- Though this seems pretty obvious, I thought I would highlight this again, opinion polls, tv debates and media releases will be closely watched over the next 6 weeks, and these may cause sharp movements on the Pound.

5. UK Economy- Economic data releases are always closely scrutinised during election campaigns, especially inflation, employment and GDP figures. Recently we have started to see a slowdown in the economy so this will be a focal point in the election, any bad figures could be seen as a weakness for the Tories, and of course, weak data usually means the Pound weakens as well.
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