Sterling surged over 2% percent against the dollar on Tuesday to hit its highest levels since mid-December after British Prime Minister Theresa May surprised markets by calling an early parliamentary election for the 8th June.
Running contrary to the norm on shock election announcements, the pound's steep gains on Tuesday point to hope among investors that the June poll may stabilise domestic UK politics as the country faces its biggest challenges in half a century.
Buffeted initially by speculation over the likely content of Theresa May's surprise statement, sterling bounced by a full cent after the prime minister called a vote for June 8, seeking to strengthen her parliamentary majority and bargaining position in talks on leaving the European Union.
The dollar dropped to a nearly three-week low against a basket of major currencies on Tuesday, pressured by lower Treasury yields. U.S. Treasury yields fell as nervousness ahead of France’s first round of presidential elections this weekend and ongoing geopolitical tensions boosted demand for safe-haven U.S. debt.
Concerns about North Korea and the French presidential elections also kept a lid on the dollar against the yen - traditionally a haven for capital in times of political and economic stress - which has surged in the past two weeks.
Investors are watching ongoing U.S.-Japan economic talks for signs of the direction U.S. trade policy could take under President Donald Trump, who campaigned on a protectionist platform and has complained of countries artificially weakening their currencies.