All that changed at six minutes past 11 on Tuesday, when the prime minister took financial markets and Westminster off-guard with her announcement that she was seeking a June 8 poll.
In the words of Deutsche Bank’s George Saravelos — until this week one of the most bearish sterling strategists — the prime minister’s move was “a game-changer for both the UK’s Brexit negotiations and sterling”.
The pound jumped to a five-month high, breaking out of the $1.20-1.27 range that it has been anchored to since mid-October. And just as FTSE 100 stocks benefited from sterling’s devaluation last year, so they lost out from its bounce, with the blue-chip index suffering its worst one-day loss since the Monday after the EU referendum.
Powering the pound is the prospect that, for the first time since the EU referendum, there is a route map for a soft Brexit, or a more market and economic friendly divorce from the continent.
At first glance that seems implausible given that investors tend to equate snap elections with uncertainty. Yet those investors with political antennas knew that far greater uncertainty lay down the road without one.
The snap election is a calculated gamble by the prime minister to beef up her Commons majority — which stands at 17 — neutralise the extreme Eurosceptics in her party, and strengthen her negotiating stance, says Mr Saravelos.
It also changes the negotiations landscape. A general election slated for 2020 had tied Mrs May to an unrealistic timetable for completing the talks.
1. Theresa May’s “citizens of nowhere” speech leads to start of sterling sell-off
2. Philip Hammond and David Davis meet bank chiefs at the Shard in a “reassurance exercise”
3. May’s Sky TV interview leaves markets unimpressed; pound falls again
4. Sterling retreats after Downing Street briefings on May’s upcoming speech on Brexit
5. May’s Lancaster House Brexit speech contributes to pound’s 3 per cent bounce
6. Bank of England meeting prompts sterling fall
7. Article 50 is triggered, starting a two-year exit negotiation process
8. May seeks early election to take UK through Brexit
As BNY Mellon’s Simon Derrick says, the snap poll gives Mrs May “the likelihood of an increased majority, a clear mandate and holding the next election in 2022 rather than 2020, thereby minimising political uncertainty”.
With the Labour opposition weakened, Mrs May is on course for a larger government majority that should “provide support for the pound by damping influence of Brexit hardliners”, says MUFG’s Derek Halpenny, who has a sterling forecast of $1.3250.
Market sentiment towards the pound has been split between investors who are increasingly gloomy about Brexit and those who see sterling as cheap.
Even through the squalls of Article 50 and the debacle of the UK Budget, the pound had already performed well in the past month, says Nick Parsons, head of UK and Europe research at National Australia Bank, with only the yen bettering its showing against the dollar among major currencies.
Now the currency appears poised to find a new, higher range — and not just because of a reassessment of political risk.
“The facts around the UK’s comparative growth, inflation and interest rates situation, combined with the sharply weaker path already followed by sterling over the past year, suggest the currency is pretty cheap and could rise from here,” says Steven Andrew, multi-asset manager at M&G.
But for some investors, a snap election merely adds an unwanted major political event to an already crowded agenda.
For David Docherty, UK equities fund manager at Schroders, the vote introduces “new uncertainties for investors”. Corporate investment and consumer confidence surveys will be particularly important indicators to watch in what “could well take the shape of a re-run of the [EU] referendum”, he says.
There is also a reasonable possibility that a bigger Conservative majority makes little difference to Mrs May’s negotiating hand. Looking at the electoral maths, James Athey, senior investment manager at Aberdeen Asset Management, cannot see the June 8 outcome as “anywhere near a slam dunk for a soft Brexit”.
After all, the Tories could end up being a more hardline Brexit party in the Commons by losing moderate MPs to the Liberal Democrats in the south and winning seats from Labour in Eurosceptic constituencies in the north.
Nor should investors automatically assume Mrs May would use a bigger Conservative majority to deliver a softer exit deal, he says.
Reaction to an announcement as rare as a snap election may also provide cover for more mundane market shifts. Surprised by markets’ reaction to the election announcement, Mr Athey wonders whether it served as “a semi-convenient excuse for some banks to refresh their quite stale sterling calls”.
Echoing Mr Athey is Mr Parsons, who says some investors have “doggedly” hung on to sterling shorts in recent weeks “even as the pound has rallied”, and sees further scope for short-covering.
But some things have not changed for sterling. It was a political currency for most of 2016, and there is every likelihood it will stay that way for many months to come.