Sterling back on election optimism

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LONDON (Reuters) – Sterling rose against a broadly weaker dollar yesterday with bullish polls for Prime Minister Theresa May’s Conservatives adding to expectations June elections may give her a stronger mandate for two years of Brexit talks.
 
The pound surged almost four full cents to its highest level against the dollar since December on Tuesday after Ms. May’s surprise calling of an early general election for June 8.
 
Investors appear to be judging that a stronger mandate for Ms. May in parliament would potentially give her more chance of making the major compromises with the European Union necessary to smooth Britain’s exit from the bloc and cap any damage to the UK economy.
 
Sterling was up half a percent at $1.2837 by 08:56 GMT, just half a cent off Tuesday’s high of $1.2908.
 
It was flat at 83.84 pence per euro.
 
“Consolidation will be the order of the day now, because I think there’s a realization that there’s both upside and downside risk on the table,” said ING currency strategist Viraj Patel.
 
“The positive case from the general election, potentially minimizes the risk of a cliff-edge Brexit.” Markets see a hard Brexit as a large negative.
 
Ms. May’s Conservatives had 48 percent of the vote in a YouGov poll for The Times on Wednesday night, compared with 24 percent for the opposition Labour Party and hinting at a landslide victory under Britain’s first past the post electoral system.
 
That the pound has not pushed on more strongly since Tuesday, however, relates to the doubts over the Brexit process and other parts of the election fallout.
 
Scotland’s First Minister Nicola Sturgeon said on Wednesday that success for her Scottish National Party in a snap election on June 8 would make it impossible for British Prime Minister Theresa May to stop a new referendum on Scottish independence.
 
Victory for Ms. May will also further weaken any opposition from outside her party to the clean break with Europe she has outlined, likely including Britain’s exclusion from the continent’s lucrative single market.
 
Ms. May will make a formal pledge ahead of the June 8 election to end European Union free movement of people into Britain, the Daily Mail newspaper reported, citing unidentified party sources.
 
The EU’s foreign policy chief yesterday said Britain will lose more from the European Union from its decision to leave the bloc, adding that talks with London were expected to be difficult.

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