Pound surges against dollar after Theresa May calls snap UK general election

The pound surged to its highest against level the dollar since January on Tuesday (18 April), after Prime Minister Theresa May surprisingly called for a general election in June triggering widespread volatility in the currency markets.

Having hit an eight-week high against the dollar earlier in the day, sterling slipped 0.3% against the greenback ahead of May's announcement, before recovering ground quickly. Shortly before midday, the UK currency was 0.16% and 0.08% higher $1.2577 and €1.1807.

"Sterling recovered its 0.6% drop against the euro and dollar this morning after the Prime Minister announced a snap election," said Alexandra Russell-Oliver, Caxton FX's currency market analyst.

"This reversed the uncertainty seen as markets speculated on the topic of the announcement. If the election grants the Conservative Party greater support, this could put the UK in a stronger position to negotiate Brexit, which could strengthen the pound."

The UK will go to the polls on 8 June after May called the snap general election.

The PM said her decision was based around Westminster's response to Article 50 being triggered, the mechanism for the UK to split from the EU.

"The country is coming together, but Westminster is not," she said outside Number 10. "Division in Westminster will risk our ability to make a success of Brexit.

"I have concluded the only way to guarantee certainty and security for years ahead is to hold this election."

Naeem Aslam, chief market analyst at Think Markets UK, said while unexpected the decision made sense from a political point of view.

"She has been under immense pressure from back-benchers," he explained. "She wants to create unity and gain more power. She wants to show that she has the ultimate power on this and she would like to sail the Brexit ship in a way that she likes to do. The process of general election would strengthen her hand."

James Hughes, chief market analyst at GkFX, added: "The news has been seen a positive for the UK and for the pound and it is yet another step to removing uncertainty in the UK surrounding Brexit.

"The PM said in her speech that she was calling the election to stop the in fighting in UK politics at a time when the people are coming together but Westminster is not. The question now remains as to what this means for Brexit negotiations, and the general feeling will be that an elected May will hold a stronger position."

Elsewhere, the dollar struggled for direction after US Treasury Secretary Steven Mnuchin told the Financial Times he saw dollar strength as a positive on the long term.

The greenback was 0.10 and 0.28% lower against the yen an the Swiss franc, trading at ¥108.80 and CHF1.0017 respectively, falling 0.19% against the euro to 0.9377 euro cents. However, the greenback gained 0.30% and 0.65% against its Canadian and Australian counterparts, fetching CAD$1.3357 and AUD$1.3261.