Pound jumps and shares fall after election announcement

Pound jumps and shares fall after election announcement


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The pound has risen strongly and share prices in London have fallen since Theresa May announced plans to call a general election on 8 June.

Sterling had fallen ahead of the statement, but it quickly recovered following Mrs May’s announcement.

By about 15:00 BST, sterling was up 1.4% at $1.274, while against the euro it was 1% higher at 1.192 euros.

On the stock market, the benchmark FTSE 100 share index was down 151 points, or 2%, at 7,178.

The FTSE 100 had already been lower ahead of Mrs May’s announcement, with shares in mining companies seeing some of the biggest falls due to falling iron ore prices.

But the increase in the pound sent the FTSE down further as many of the companies listed on the index have significant revenues from overseas.

A stronger pound cuts the value of these revenues when they are converted back into sterling.

The rise in sterling took it to its highest level for 10 weeks, although the pound still remains well below levels seen before the UK’s Brexit vote last June.

One of Europe’s largest investment banks, Deutsche Bank, said the news of the forthcoming UK election meant it would not be so downbeat about the outlook for the UK and its currency.

“It makes the deadline to deliver a ‘clean’ Brexit without a lengthy transitional arrangement after 2019 far less pressing given that no general election will be due the year after,” the bank said.

It also argued that if the election gave the Tories a bigger majority, this would strengthen Theresa May’s negotiating stance, and it would “dilute the influence of MPs pushing for hard Brexit”.

All this, the bank said, reduced the “crash risk” of Brexit negotiations.

Luke Bartholomew, of investment firm Aberdeen Asset Management, said: “The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit.

“That would be welcomed by financial markets,” he added.

However, Neil Wilson, of ETX Capital, said: “For investors [the snap election] adds another layer of complexity to an already uncertain picture for UK and European assets.

“Volatility is likely to remain elevated over the coming weeks.

“And as elections are so unpredictable, there is always the outside risk it could spark a reversal in the entire Brexit process.”



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