Daily FX Update – 19th April 2017
Just as it seemed that things in the UK were calming down a little in the face of Brexit, out came Theresa May announcing a snap general election on June 8th. The “important announcement” from 10 Downing Street initially saw GBP relinquish gains but it was all one way traffic higher as the market received the news well. But what does this actually mean for the Pound?
For me, not a lot has changed. Right now, we’re trading UK politics, not UK fundamentals or potential Brexit impact. Whilst some are calling May’s call a prudent one, particularly in light of the party’s lead in recent opinion polls, there is still an element of risk. Today we went to Parliament to gather whether the other parties and MPs back her call. She alone does not have the power to call it and needed two thirds of the house to back it. She overwhelmingly got it so stage 1 of her plan was a success as essentially it puts a lid on parties prodding at her for their own agenda. What we are still loose on however, are the finer details on both sides and this will remain the key risk for the Pound; and a great risk it remains.
Whilst the Pound has climbed substantially, caution is advised here as ultimately, not a lot has been amended as a result of the announcement of the election. In any case, levels seen over the last 24 hours could almost not be imagined so coverage here may be prudent. The market enjoys a sure thing and the only sure thing is who’s in power but she has a gigantic task ahead and for me, the Pound short was such a crowded trade, that people pounced upon it and some shorts were ultimately squeezed of the market. Price action for the rest of the week will certainly be telling either way.
Focus from a data perspective will be on EU inflation numbers and the US Beige Book but all eyes are likely to centre on the Pound’s trajectory.
Have a good day.