Posted by Allison on 21 April 2017, 15:49
We all know political events can have a significant effect on the way a currency performs. We saw that only this week, when Prime Minister Theresa May called a surprise General Election. News filtered through early on 18th April that the Prime Minister was going to make a statement in Downing Street at 11.15am. In contrast to many such occasions (and they are rare), there is no news on what she will speak about… although rumours of a General Election are rife.
The pound had hit highs of $1.2608 against the US dollar prior to that announcement. Perhaps not surprisingly, it then dipped, marking out the uncertainty of the announcement itself, falling to $1.2537 shortly after the announcement was made. This then fell further to $1.2505.
Uncertainty can cause big dips in the currency markets, so this was perhaps to be expected. However, shortly before 11.15am, Theresa May made her statement, announcing there would be a snap General Election on 8th June. On that news, the pound recovered, reaching $1.2582 just moments after the announcement was made, on 18th April.
The pound finished the day on $1.2660, notably higher than the rate it had gone into the Easter weekend on, which was $1.2540. It had also improved against the euro, with the opening rate on Tuesday of €1.1797 rising to €1.1851 after the announcement.
The remaining days of the week also looked better, as the pound finished Thursday night on €1.1916 from a high the previous day of €1.1986. We have yet to see how the final day of the week will pan out, but we had a similar picture against the US dollar, too. We mentioned the closing rate on Tuesday was $1.2660, but by Thursday this had improved still further, rising to $1.2803.
We are now in a period of campaigning for the General Election, of course, so there will be several weeks of uncertainty before the result is known – although, many expect the Conservatives to win a huge majority, given the state of the Opposition. The currency markets tend to fluctuate significantly when exposed to political events, and there can be few bigger than a General Election. However, there is little uncertainty on the outcome of the Election, which could be why the pound bounced back so readily once the PM’s announcement was made.
It will be intriguing to see whether the pound will hang on to the early gains made in the days following the announcement. Furthermore, with just a few weeks to go until polling day, we should perhaps expect further rises and falls in the value of the pound before the result is officially known. This could well be one of the most important General Elections in years. Watch this space.