What's going on?

Britain�s prime minister, in a surprise move, looks set to trigger a national election due for early June (tweet this) � and that has the potential to have a big impact on markets.

What does this mean?

In the immediate aftermath of Britain�s vote to leave the European Union (EU) last year, Prime Minister David Cameron resigned and was soon replaced by Theresa May. Since then, May has formally begun the process of leaving the EU, but she has done so with her party having only a wafer-thin majority in Parliament. Current polls suggest that the Conservative Party, which she leads, would gain a larger majority, and thus firmer political power, if an election were held today.

Why should I care?

For the markets: The pound shot to a four-month high versus the dollar.

The pound jumped more than 1% following the announcement, which suggests that investors are optimistic that the prime minister will be empowered to negotiate a better deal for the UK economy (click here to learn why a stronger currency is indicative of a stronger economy). For example, a larger majority in Parliament could diminish the power of the more extreme Brexiters, who favor limits on immigration over continued �free trade� with the EU (continued free trade with the EU is viewed as very important to the UK economy).


The bigger picture: A stronger currency often leads to weaker stock prices.

Many British companies earn most of their income internationally, and thus that income is worth less in pound terms as the pound increases in value. This partly explains why UK stocks fell more than 2% on Tuesday, their worst day in months. Japan is another country where the value of its stocks is strongly inversely related to the value of the currency (i.e. stocks drop when Japan�s currency goes up in value). This is also true in the US, although to a lesser extent since US companies tend to do proportionally more of their business within the US.