Sterling dropped around 80 points as the market was spooked
by news that UK Prime Minister Teresa May was to make a major announcement imminently,
Cable falling to 1.2515 from1.2585 in a matter of minutes.
Prime Minister May has surprised by calling a snap general
election for June 8 in the UK, however as the announcement was made Cable
rebounded strongly to the 1.2575-80 level. Market sources say the initial dip
was driven by rumours that May was going to announce her resignation, however
the reality of an election has apparently been taken by investors as a sign the
UK may have changed tack on Brexit and prompted the rebound.
By calling the election for June 8, PM May is clearly hoping
to get backing for her Brexit strategy and with her government holding a strong
lead in the polls, such a result would deliver her that mandate.
That said, what could be at play is just old fashioned
opportunist politics, for as Neil Wilson, senior market analyst at ETX Capital,
observes, “The Tories have a thumping majority in the polls at the moment so
the PM may just be gambling on significantly boosting her rather slender
majority in Parliament.”