May’s election gamble offers longer-term turnaround for sterling, but at FTSE’s expense
By Patrick Graham
LONDON (Reuters) - Running contrary to the norm on shock election announcements, the pound's steep gains on Tuesday point to hope among investors that the June poll may stabilize domestic UK politics as the country faces its biggest challenges in half a century.
Buffeted initially by speculation over the likely content of Theresa May's surprise statement, sterling bounced by a full cent after the prime minister called a vote for June 8, seeking to strengthen her parliamentary majority and bargaining position in talks on leaving the European Union.
London's main stock indices fell, but her decision encouraged major figures in the City, who have been worried so far by the government's strategy for the process and the fallout for the economy.
They hope it may give May more room to rein in her own Brexiteers to deliver a more orderly divorce from Europe while also allowing a reset of a weakened opposition Labour Party.
"The decision to call a snap election on June 8 is not without risk, but given a 20-point lead in the polls the Conservatives should be able to materially increase their working majority in parliament," said Mike Amey, head of sterling portfolio management at the bond fund PIMCO.
"That in turn would give the government more room for maneuver during the Brexit negotiations, and make the government less exposed to the more right wing factions within the party."
All this comes after a run of declines by the pound, which reduced one of the world's five big reserve currencies to levels not seen since a collapsed bid to join the euro in 1985.
Against the dollar, 2016 was the worst year for sterling since the 2008 financial crisis, and some strategists worried a flurry of negative headlines from the first blows in the Brexit talks over the next few months may weaken it further. Continued...