The pound surged against a basket of currencies, while the FTSE 100 fell sharply, after Prime Minister Theresa May announced a snap UK general election this June.
According to Mrs. May, “The only way to guarantee certainty and security for years ahead is to hold this election”.
The pound rose 2.2% against the dollar to $1.2846 (highest level since early October) and 1.4% against the euro to 1.1968 euros.
The FTSE 100 dropped 180 points, or 2.5%, down to 7,148.
A strong pound sent the FTSE down because a large number of the companies listed on the blue-chip index receive their revenues from overseas, equating to a decreased value of revenues in pound sterling terms.
Laith Khalaf of Hargreaves Lansdown, was quoted by the BBC as saying: “Currency markets have roared their approval for a snap UK election, with the pound enjoying strong gains against the dollar and the euro.
“The fall in the stock market is not a negative response to the UK election per se, rather it is a knock-on effect of a surging pound, combined with price falls in some key commodity markets, all of which has taken its toll on the heavyweights of the FTSE 100 index.”
Polls suggest that the election will give the Tories a higher majority in the House of Commons
Deutsche Bank said that it is a bit more optimistic about the outlook of the British economy and the pound sterling after the announcement of June’s general election.
“It makes the deadline to deliver a ‘clean’ Brexit without a lengthy transitional arrangement after 2019 far less pressing given that no general election will be due the year after,” analysts at the investment bank said, according to the BBC.