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May’s Early Election Bid Sends Sterling on Roller Coaster

Summary:
Summary: May calls snap election for June 8. Tories running 20 percent point lead over Labour. Next election would be in 2022, after the Brexit negotiations conclude. 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.

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Summary:

May calls snap election for June 8.

Tories running 20 percent point lead over Labour.

Next election would be in 2022, after the Brexit negotiations conclude.

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.

GBP/USD - British Pound US Dollar, April 19

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May’s Early Election Bid Sends Sterling on Roller Coaster

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Marc Chandler
Marc Chandler is Global Head of Currency Strategy of Brown Brothers Harriman (BBH). Previously he was the Chief Currency Strategist for HSBC Bank USA and Mellon Bank. He has been covering the global capital markets in one fashion or another for 25 years, working at economic consulting firms and global investment banks. A prolific writer and speaker he appears regularly on CNBC and has spoken for the Foreign Policy Association. In addition to being quoted in the financial press daily, Chandler has been published in the Financial Times, Foreign Affairs, and the Washington Post. BBH provides specialist services and innovative solutions to many Swiss asset managers that include a global custody network of close to 100 markets, accounting, administration, securities lending, foreign exchange, cash management and brokerage services. Feel free to contact the Zurich office of BBH

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