The pound had sunk prior to May’s pledge, as uncertainty surrounded the scheduled statement.
But cable recovered after the PM revealed her plan for an election. Late on Tuesday night the pound was trading above $1.28, having dipped close to $1.25 earlier in the day.
Read more: Theresa May calls for early General Election
The reaction on bond markets was more muted, although yields on benchmark UK government debt still rose from lows of one per cent – the lowest since mid-October – to around 1.055 per cent. Yields move inversely to prices.
May said she had changed her mind to hold an election "recently and reluctantly" but said a vote was "the only way to guarantee certainty and stability for the years ahead".
She was encouraged by the UK's "economic growth [which] has exceeded all expectations".
The prospect of a stronger parliamentary majority for May's Conservative party was greeted positively by currency traders, with Deutsche Bank and Goldman Sachs, generally among the more bearish analysts of the pound/dollar trade, both moving their forecasts higher.
Derek Halpenny, European head of global markets research at MUFG, said: "Everyone's talking about this strengthening the Prime Minister's hand in the negotiations."
The resounding victory for the Conservatives predicted in almost all polls would lessen the influence of the right wing of her party, making a "pragmatic approach through Brexit" more likely, Halpenny added.
Peter Ashton, managing director at Eiger FX, said: “The markets were quick to price in greater economic and policy stability under what they expect will be a significant majority given the weakness of the opposition.
“There is still huge uncertainty surrounding the implementation of Brexit but a strong majority party will help to provide a degree of stability while we negotiate the choppy waters ahead."
Mark Horgan, chief executive of Moneycorp, said the election will prompt a rise in hedging: "This is more uncertainty in a world of uncertainty."
Sterling is expected to likely strengthen further in the run-up to the vote, but any indications of Conservative support slipping could see further volatility.
Horgan said: "This has a long way to run. We're not even out of the blocks."
He added: "I definitely don't think this election is predictable."
The announcement came on a day London’s blue chip stocks have seen their worst declines in two months in morning trading as a strong pound and sharply lower iron ore prices dragged on the FTSE 100.
Overall London trading volumes rose to levels surpassing those seen after the EU referendum, with turnover reported by the London Stock Exchange rising to levels not seen since the financial crisis in the period before 1:30pm, with a significant part of the trading day remaining.
The FTSE 100 fell by more than 1.8 per cent on Tuesday after the Easter bank holiday, dropping to its lowest level since the end of February. It hit lows of 7,192.26 points at the time of writing.
Miners were the four worst performers amid broad-based losses: only six of the 100 saw their share prices edge up at the time of writing.
Iron ore prices reached their lowest point since November in China on Tuesday, according to Bloomberg, after steady declines in the metal’s value since mid-February.
The metal has been hit by signs of slowing demand in China as the world’s second largest economy gradually moves towards a more services-oriented model rather than one based on industrial expansion.
Markets around Europe dipped in morning trading, with the Cac 40 in Paris falling by 1.30 per cent at the time of writing and the German Dax losing 0.67 per cent.