FTSE 100 watch: Weaker pound pushes index to record high

on Oct 11, 2016

The FTSE 100 has rallied in today’s session, underpinned by a further weakening of sterling against the dollar. The UK benchmark index rose as much as 0.5 percent to a record intraday high of 7,129.83 points, before settling back a touch to stand 0.05 percent higher at 7,101.12 as of 13:50 BST. The last time the Footsie was at this level was in April last year, when it reached 7,122.74 points during trading before falling back slightly to finish at a record closing high of 7,103.98.

The driving force for the market’s surge has been today’s rapid decline in the pound, down 0.8 percent against the dollar at $1.22. Some traders said the fresh fall was prompted by a report that Russian bank VTB may move its European hub away from London, adding to worries of foreign investment fleeing from the UK. Others pointed to leaked documents warning that leaving the EU single market could cost the Treasury more than £66 billion a year.

Since Britain’s vote to leave the bloc on June 23 sterling has fallen about 18 percent against the dollar to lows not seen since 1985. The weaker pound boosts the earning potential of UK-listed firms with overseas earnings and makes stocks cheaper for overseas investors. However, on dollar terms, the FTSE’s market value remains well below its referendum result level — down more than six percent.
“Brexiters might point to the FTSE’s rise as a sign of strength, but this is very much a story of sterling weakness boosting foreign earnings, which account for about two-thirds to three-quarters of FTSE 100 company revenues,” said Neil Wilson, a markets analyst at ETX Capital, as quoted by the Guardian.
In individual movers, blue-chip retailers Marks & Spencer (LON:MKS), Burberry (BRBY) and Next (LON:NXT) have been leading the gains today after data released by the British Retail Consortium showed like-for-like retail sales grew by 0.4 percent month-on-month in September, after a fall of 0.9 percent in August.

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