Theresa May is hoping a snap election will strengthen the conservative party's hand towards the Brexit negotiations. Will investors see this as a positive opportunity for Sterling?
We are now over a month since the triggering of Article 50 and over a week since the snap general election was called we have seen Sterling make some gains during this period. The political stability appears to have come back, at lest for the time-being and this has seen the vale of the Pound recover against all major currencies. At the moment the Conservatives hold a 19 point lead over Labour according to a poll released by ICM. According to the poll support for the Tories stands at 47% of the vote compared to Labour with just 28%.
We all know how unreliable polls can be when we look back at 2016 with both the Brexit vote and Trump but this time it looks more likely than the Tories will be able to hold on to power and in my mind I think this could help the Pound once the votes are counted on June 8th.
The Pound has recently hit its best rate to buy since November and the best level to buy US Dollars since September last year.
In an article published in a German newspaper over the weekend EC President Jean Claude Juncker has claimed that there would be no trade deal with the UK and the rest of the EU if the UK fails to pay its costs of leaving the European Union. It has been suggested that Theresa May wants to make the Brexit a success as well as sorting out the issues of UK and EU nationals by as early as next month. Juncker has been quoted as saying ‘Brexit cannot be a success... and the more I hear, the more sceptical I become.’ This highlights that as the negotiations continue there are likely to be a lot of disputes and the key of free movement of people will be crucial to the success of negotiations and this is likely to provide huge support if this occurs.
Over the weekend the EU has set out terms for the Brexit negotiations and is likely to make leaving the EU a difficult task as it wants to actively discourage others from doing so. Therefore, I still think that although we could see the Pound make some short term gains there is a clear risk to the strength of the Pound during the Brexit negotiations.
In the short term the UK releases Markit Manufacturing data for April tomorrow morning and as this has showed signs of slowing recently could this cause a short term blip for Sterling’s recent advances?
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