The British pound made a remarkable jump after Prime Minister May called for a snap election. Marking the highest level in 2017, investors turned enthusiastic over the currency. In a wider perspective, the currency remained on a bullish path even before the announcement was made. However, the recent rally was just too big to be taken for granted.
Snap Election Brings Instant Surge
Amid the rising inflation, the Bank of England has kept its interest rates on hold. Thus, the British currency couldn’t have the support that the US currency had when the Federal Reserve decided to implement a rate hike last December. Fundamentally, the rise of interest rates is followed by currency appreciation, but it seemed that the current strength of the currency comes from the foreseen economic stability brought by the notion of a snap election.
Since the Article 50 was initiated, the British pound had minor fluctuations; however, the currency remained on the hype in the subsequent sessions. Adding support to the previous upward momentum of the sterling was the upbeat employment data released last week. The improvement in the job sector indicates improvement in the economy. On the other hand, consumer prices increased which broke the optimism over the economic growth needed to push for a rate hike in the next policy meeting of the Bank of England.
As the market players await for the response of the government and the Britons on the declared snap election, the interest will likely remain on the sterling.
Government and Market
Nonetheless, the post-Brexit concerns will continue to haunt the British currency exchange. Similar to the initial impact of the UK referendum, the agreement and the negotiations regarding the total exit of the Britain from the European Union will shake the trade relationship, business investments and even the stability of the British government. In this case, the British currency may suffer along the way.
If ever, the Conservative Party wins in the snap election, PM Theresa May will have the opportunity to provide a momentary unified action from the government regarding the Brexit. If the government is steady and the economy is stable, then, it will be reasonable that the market interest falls on the sterling.
From the point of view of experts, it was too early to tell that the uptrend would be sustained in the next two months. Investors still need to wait for a solid indication from the central bank, the economic records and government movements. It is in the nature of the market to be volatile, anything can happen anytime.
Currency Pair Movement
Meanwhile, GBP/USD continued to move upward after trading at 1.2847 on Wednesday session. As seen in the charts provided below, the Bollinger Band has started to contract which means there could be a low volatility for the pair. Also, the GBP/USD pair traded above its 20-day SMA of 1.28331 and 50-day SMA of 1.26962. After opening at 1.28496, the pair had a session high of 1.28573 and session low of 1.28342. The numbers are still kept in a tight range and if this path persists, the pair may end today’s session at 1.28600 levels.
As of 16:01 UTC, Here’s how the sterling is trading against a basket of currencies.
GBP/CHF 1.27989 UP
GBP/JPY 139.792 UP
GBP/AUD 1.70760 Down
GBP/NZD 1.82752 Down
EUR/GBP 0.83469 Down
GBP/CAD 1.72468 UP
GBP/BRL 4.00381 UP