British Prime Minister Theresa May surprised financial markets this week as she called for an early general election on 8 June. Mrs May came under some scrutiny for calling the general election as she had previously said there would not be a general election in 2017.
Theresa May on Tuesday delivered a speech outside her Downing Street office saying she had been reluctant to make the decision, but she needed to call a general election as soon as possible to strengthen her hand in talks with the European Union. She also said that winning a majority at the election would give her the support she needed to push through the Conservative party’s Brexit plan.
Many see the announcement as a purely tactical move, as opinion polls give her a strong lead going into the elections. The Labour party, led by Jeremy Corbin whose leadership has been questioned, remain far behind the Conservatives in polls. The British economy has so far defied predictions of a slowdown, with robust data releases this year showing steady job creation and an uptick in inflation due to a weaker Sterling since Brexit.
The pound’s reaction to the announcement saw it rise to a four-month high against the U.S. dollar, and even temporarily reached the 1.29 level after starting the week above 1.25. The British Pound also moved sharply higher against the Canadian dollar last week. The loonie also came under pressure from weaker oil prices.
Britain’s main share index FTSE 100 ended Tuesday’s trading session with losses by 2.6%. That was its biggest one-day decrease since Britain voted to leave the EU, showing investors the inverse relationship it seems to have with the British pound.
The euro currency moved higher this week, ahead of the first round of the French elections held over the weekend. The single currency touched a high of 1.07766 against the US dollar on Thursday, after starting the shortened trading week just above the 1.06 level. The EUR/USD ended the trading week at 1.07262.
French equity markets fell last week. Nervousness ahead of the first round of the French election set in, with the CAC40 closing the week in the red. Opinion polls suggested centralist party candidate Emmanuel Macron would win the majority of votes over the weekend. However, this weekend is only the first round of voting, where two candidates will be chosen by for the final round.
Financial markets were nervous prior to the election, as Marine Le Pen promised to hold a referendum on France’s membership of the European Union, and potentially ditch the euro currency and return to the French franc.
WTI Oil fell sharply last week as data released on Wednesday by the Energy Information Administration (EIA) showed a much lower than expected reduction of inventory supplies in US crude oil. The news sparked a sell-off in the WTI oil market, sending the price down by 3.3%, and causing a number of commodity-related currencies to move lower.
The New Zealand dollar moved higher last week, spurred on by better than expected inflation figures released on Wednesday by Statistics New Zealand for the first financial quarter. The kiwi traded to a daily high of 0.70509 against the US dollar, and closed the week at 0.70277.