May’s Early Election Bid Sends Sterling on Roller Coaster

 

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UK Prime Minister May surprised investors by calling for a snap election on June 8.  The Tory Party is ahead of Labour by over 20 percentage points.  It currently enjoys a 17-seat majority in the House of Commons.  The early election would put the next scheduled election in 2022, which is after the two-year Brexit negotiations are complete.

The 2011 electoral law set fixed election dates.  There are two ways around it.  The first is a 2/3 majority vote approving of the early election.  This is the course May will try first.  A bill is expected to be submitted tomorrow along these lines.  However, there it may not get sufficient support.  That would leave it with a less desirable course:  failing a vote of confidence, which would put the Tory MPs in the unenviable position of voting against their own government.

 

The move comes as a surprise.  Before the Easter break, the Prime Minister’s office denied plans to call for an early election.  Speculation of an early election has lingered since May succeeded Cameron after the Brexit vote.  Her argument for an election was straight forward.  Brexit negotiations would reach their most crucial part in the run-up to the next scheduled election, which would undermine the UK’s position.

In her statement, May dared the opposition parties that had been critical of her stance to let the voters decide.  It may be a gamble.  The opposition parties may not give her snap election motion support, suspecting that they may have a stronger voice now than after a snap election.  However, Labour leader Corbyn immediately endorsed May’s call for the election.  Corbyn appears to enjoy better support among the Labour rank-and-file than its parliamentary contingent.  Farron, who heads up the Liberal Democrats also seemed to favor an early election.

After wobbling early, sterling has rallied.  It is trading near at 10-week highs against the dollar near $1.2660.  It is through a trendline drawn off the early December and early February highs that came in near $1.2620 today.  There is technical potential toward $1.27-$1.28.  Sterling has traded on both sides of yesterday’s range and a close above yesterday’s high near $1.26 would be a constructive technical development.  The euro is posting an outside down day against sterling and appears set to test the year’s low near GBP0.8400.  A break would target GBP0.8275-GBP0.8300 and possibly GBP0.8175.