LONDON – The British currency has jumped to its highest level in half a year on the news that the country will hold an election that's likely to strengthen the government's mandate in its Brexit talks.
The pound's rise suggests investors believe Prime Minister Theresa May will win a comfortable enough majority in the House of Commons. That could help her resist pressure from fringe members of her own party who want Britain to break away from the European Union abruptly and forcefully — even if it means more pain for business.
The pound surged 1.6 percent on the day to $1.2763, the highest in six months. And experts say more volatility is likely ahead of the June 8 vote.
"No one was expecting this," said Luke Bartholomew, investment manager at Aberdeen Asset Management. "It will take investors some time to digest the effects of the election in the next few days."
Despite the pound's rise, it remains 15 percent below the level it was trading at before the country voted in June to leave the EU.
The weaker pound has pushed up inflation for the British, as it makes imports more expensive. It has also made British companies more attractive takeover targets for foreign companies. Japan's SoftBank took over software company Arm Holdings just a couple weeks after the Brexit vote. More recently, consumer goods giant Unilever has rebuffed a $143 billion approach by Kraft Heinz.
The currency's rise and fall have also caused huge volatility in the country's main stock index, the FTSE 100. The index is dominated by companies that earn money outside Britain, so the pound's fall has been a boon for them, as money repatriated is inflated in value. That's why the FTSE 100 has hit record highs since the Brexit vote.
But on Tuesday, the pound's rise caused the index to dive 2.5 percent, the biggest daily drop since the day after the Brexit vote.