WisdomTree: General Election boost for sterling could be short-lived
Following yesterday’s surprise announcement of a General Election on June 8th and the pound’s subsequent rally Viktor Nossek, director of research at WisdomTree in Europe, said:
“The sharp jump in the pound yesterday against a number of currencies, including the US dollar, was an acknowledgment that the snap election is likely to lead to more political certainty, given the Conservative Party’s lead in the polls. There would be far more downside risk for the Prime Minister if she had waited another 12 months before acting, but by deciding to hold an election on June 8th – with the sentiment in the UK still in favour of Brexit – it means the Tories will be able to cement their position and allow the PM to get the political support needed to follow her agenda. The move has also given the opposition little room to prepare, and call for, an alternative to Brexit, or a watered-down version of it.
“The move was a surprise and there has understandably been a reaction from investors, focused on currency and equity markets. Looking at the pound, we do not expect it to head significantly higher from here. This is not a game-changer for cable, for example, and indeed other factors were at play yesterday, with some of the economic momentum in the US fading a little recently. Indeed, sterling’s move upwards against the US dollar could unwind pretty quickly if the earnings season in the US is positive, and if inflation data picks up in the States.”