Today’s News
The British pound edged higher while U.K. stock futures fell on Wednesday after Prime Minister Rishi Sunak announced a parliamentary election for July 4. Analysts noted that this move alleviated some political uncertainty for traders.
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The pound rose 0.3% on the day to USD 1.2744, gaining modestly from levels before Sunak’s announcement outside his Downing Street residence. Futures on the FTSE 100 stock index fell 0.7%, having been down 0.6% earlier in the day.
The blue-chip FTSE 100 index closed down 0.6%, while U.K. gilt yields spiked following data showing that inflation slowed less than expected in April. This development weakened the case for the Bank of England to cut interest rates as early as June.
Neil Jones, senior FX sales to financial institutions at TJM Europe, commented, “Currencies like political certainty, and the pound is no exception. An election generates unknown variables and moving parts.” He added, “There is very heavy focus on the BoE and the dollar right now, and that will remain key; we’ve just added another layer of significance into the mix for the pound.”
Image Source: CNBC
Sterling options volatility, a measure of trader demand for protection against large future price swings, rose for contracts covering July 4. Two-month options volatility saw its largest one-day increase since mid-April, reaching 6.08%.
A U.K. election must be held by January 28, 2025, by law, and speculation about an early election had been mounting throughout Wednesday. The opposition Labour Party has maintained a lead of around 20 points over the Conservatives in opinion polls since late 2021. Sunak assumed office in October 2022.
Though an election was widely anticipated this year and was not expected to immediately impact the economic outlook or Britain’s debt trajectory, investors and analysts now expect increased focus on policy proposals, especially from the leading Labour Party.
Nicholas Rees, an FX analyst at Monex Europe, said, “Markets really are just looking for stability and certainty from any government coming in, and right now it looks like we are going to get a relatively moderate Labour government that is going to pursue relatively market-friendly borrowing policies. Markets are looking at it and going ‘thank goodness’.”
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