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Pound holds steady after Sunak's snap election announcement

Labour Party leader Sir Keir Starmer, pound was steady
The pound was steady on Thursday as Labour Party leader Sir Keir Starmer visited Gillingham Football Club on the campaign trail. (Gareth Fuller, PA Images)

The pound was steady against the dollar on Thursday, holding near two-month highs, after Prime Minster Rishi Sunak called a snap general election.

Sterling pushed just under 0.1% higher versus the US greenback to 1.2727, as a six-week election campaign begins before the 4 July. It also came after data on Wednesday showed inflation did not slow as much as expected in April.

Average polling data suggests that it is likely the Labour Party will win and form a government, achieving power for the first time since 2010.

Read more: FTSE 100 LIVE: London underperforms against European peers as UK election race begins

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According to Nomura, prospects of a Labour government "may spark historically low EUR/GBP volatility if they pursue deeper EU integration."

The currency was also steady versus the euro, which is worth a little over 85p, close to the pound’s strongest since February.

"The last time UK politics had any material impact on the pound outside budget announcements was when there was Liz Truss - and that was related to the budget too - outside of that it was the Brexit discussions," Francesco Pesole, FX strategist at ING, said.

"Sterling now is trading almost entirely on the back of monetary policy in the UK and the US, so the question we should be asking ourselves is ‘Will the election have any clear implications for Bank of England timing for rate cuts?’ and we don’t think so."

The movements also come as several City experts have reduced their forecasts that the Bank of England will cut UK interest rates next month.

Goldman Sachs, HSBC and Deutsche Bank all now expect the first rate cut to come in August, rather than June.

Read more: UK inflation falls to 2.3% in April inching closer to Bank of England target

Goldman Sachs said: "Given firmer incoming price and wage data, we no longer expect a June Bank Rate cut. First, services inflation came in at 5.9% year-on-year in April, well ahead of consensus expectations and the MPC‘s May projection of 5.5% year-on-year."

Money markets are now betting that there is only a 10% chance of a rate cut in June, down from over 50% at the start of the week.

Pesole added: "It could have been a trickier one, for the Bank of England if inflation had come in lower - the important bit was services inflation, which was still too high - as the chance of a rate cut in June has declined."

Watch: UK prime minister Rishi Sunak announces general election for 4 July

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