GBP/USD has jumped on Tuesday, gaining close to 200 points. In North American trade, GBP/USD is trading at 1.2740. The pound has climbed after Prime Minister Theresa May surprised the markets by calling an election for June 8. On the economic front, US construction numbers were mixed. Building Permits improved to 1.26 million, edging above the forecast of 1.25 million. Housing Starts dropped to 1.22 million, shy of the forecast of 1.25 million.
The pound started the week quietly, as British markets were closed for Easter Monday. However, the currency has jumped to an 18-week high after Prime Minister May announced that the country would go to the polls. Why did May decide to seek a fresh mandate now? One reason is that she is enjoying a huge lead in the polls, and could improve on her thin majority in parliament. As well, her government has run into difficulties with the opposition and the House of Lords over Brexit, and hopes that the election results will strengthen her hand as she prepares for the unenviable task of negotiating Britain’s departure from the European Union. In announcing the snap election, May said she was reluctant to call an election (some three years ahead of schedule), but that the country needed stability and certainty ahead of the difficult negotiations with Europe.
In the US, consumer indicators wrapped up last week on a sour note. CPI declined 0.3%, and Core CPI dropped 0.1%, as both indicators missed their estimates. Consumer spending was no better, as Retail Sales and Core Retail Sales also missed estimates with readings of 0.2% and 0.0%, respectively. Earlier in the week, UoM Consumer Sentiment improved to 98.0, beating expectations and hitting a 3-month high.What is unusual is this data is that consumer confidence levels improved in March, yet consumer spending declined. The US consumer behavior continues to be marked by a "hard/soft discrepancy", as confidence levels ("soft data"), has not translated into actual spending numbers ("hard data"). The odds of a June rate hike from the Fed has fallen to 46%, down from 64% earlier in April. Janet Yellen & C0. will likely want to see stronger inflation numbers before pressing the rate trigger.
