Pound whipsaws after Johnson calls for UK election

Two people are seen exchanging U.S. banknotes.
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The British pound boomeranged on Thursday following Prime Minister Boris Johnson's call for a national election, plunging then recouping some losses to land half a percent lower on the day against the dollar.

Johnson said on Thursday he was asking parliament to approve a national election on Dec. 12 in an effort to break the political deadlock over Brexit and ensure the UK leaves the European Union. In a letter to opposition Labour leader Jeremy Corbyn, the prime minister said he would give parliament more time to approve his Brexit deal but that lawmakers must back a December election.

Although uncertainty about Brexit has hurt the pound, the currency has been bolstered in October as the chances of a no-deal exit have been all but eliminated. It was against that backdrop the pound retraced its initial losses after Johnson announced his third attempt to force a snap poll. The pound was last down 0.575% to $1.285. It is currently up nearly 5% this month.

After surging to a 5-1/2 month high on Monday, the pound has come back under pressure after British lawmakers blocked Johnson's plan to push through a withdrawal agreement and get the UK out of the EU on Oct. 31.

The Brexit end game is more uncertain than traders thought last week, setting up the pound for another rocky period. Against the euro it dropped 0.37% to 86.47 pence per euro.

In the UK, data this week showed the government was likely to miss a goal of keeping borrowing below the threshold of 2% of GDP, reflecting weakening public finances even before Brexit.

The Brexit optimism had led money markets to slash the chances of interest rate cuts next year but those estimates are creeping higher again, with a cut now 90% priced for December 2020, up from 60% a week ago.