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Markets mixed after Theresa May announces June U.K. election

Market reaction was mixed to U.K. Prime Minister Theresa May's announcement that she would call for an early general election to take place June 8.

The pound sterling fell ahead of Ms. May's statement Tuesday, but more than recovered to around $1.28 after the announcement. The FTSE 100, however, fell 2.5% from market open.

In her statement announcing the move, which will be put before a parliamentary vote April 19, Ms. May said: “Last summer after the country voted to leave the European Union, Britain needed certainty, stability and strong leadership; and since I became prime minister the government has delivered precisely that. Despite predictions of immediate financial and economic danger, since the referendum we have seen consumer confidence remain high, record numbers of jobs, and economic growth that has exceeded all expectations. We have also delivered on the mandate that we were handed by the referendum result — Britain is leaving the European Union and there can be no turning back.”

Luke Bartholomew, investment manager at Aberdeen Asset Management, said in a statement provided by a spokesman that “it will take investors some time to digest the effects of the election in the next few days. A big factor for them is whether the election will make a softer stance on the Brexit negotiations more likely.”

He said the election should hand Ms. May a “much bigger mandate to stand up to the harder line, anti-EU backbenchers who currently hold a disproportionate sway over her party's stance on Brexit. That would be welcomed by financial markets.” He said there is also a “decent chance of some volatility” given imminent elections in the U.K. and France.

Mike Amey, head of sterling portfolio management at Pacific Investment Management Co., said in a reaction statement that the Conservative Party should be able to “materially increase their working majority in Parliament. That in turn would give the government more room for maneuver during the Brexit negotiations, and make the government less exposed to the more right-wing factions within the party. All else equal, that should lower the risk of a very disruptive Brexit as the government should be able to plot a less confrontational exit from the European Union. Whilst the initial market reaction has been muted, this should reduce the risk premium in U.K. assets and put upward pressure on U.K. gilt yields and potentially support the British pound.”