FTSE lags on pound strength as PM May paves way For Brexit delay
Fiona Cincotta February 26, 2019 4:56 PM
Following a lack of fresh developments on US - Sino trade, investor enthusiasm waned. Asian markets retreated from 5-month highs and European bourses spent much of the day in the red.
Following a lack of fresh developments on US - Sino trade, investor enthusiasm waned. Asian markets retreated from 5-month highs and European bourses spent much of the day in the red. Wall Street kicked off on the back foot, however the Dow pared losses after consumer confidence was better than expected.
European markets turned positive after Wall Street pared losses. The FTSE, however, was a standout decliner, thanks to the soaring pound. As the pound increases in value the exchange rate becomes more disadvantageous for the multinationals on the FTSE, which earn profits abroad. Multinationals make up around 70% of the FTSE so its easy to see why a higher valued pound can reflect so strongly on the leading UK index pulling it lower.
The pound surged to a 21-month high versus the euro and a 5 ½ month high versus the dollar on hopes that Brexit will be delayed. After months of Theresa May insisting that the UK would leave the EU on 29th March, she has given in ministers to prevent an en masse resignation. With Theresa May now promising ministers not just a meaningful vote but also a vote on no-deal Brexit and a vote on delaying Brexit should her deal fail, and with Corbyn fighting the second referendum corner, the future for the pound, whilst still uncertain suddenly looks a lot rosier. With a no deal Brexit close to falling off the table, the pound hit a high of $1.3204 before easing slightly lower.
Dollar drops ahead of Fed Powell’s testimony
The dollar is trading lower as attention switches towards Federal Chair Jeremy Powell for his semi-annual appearance testifying on Capitol Hill. Traders will be keen to see whether Powell continues with his cautious tone and need for patience or whether progress in US – Sino trade talks will give him a renewed optimism over the outlook of the US and global economy. Talk about the down side risks to growth and the possibility of fewer rate hikes could see the dollar fall which will be positive for the Euro. On the other hand,
Crude is clawing back losses, after diving 3% on Monday following Trump’s tweet slamming OPEC for sending oil prices higher. We know Trump is vocal with his opinions and with the Fed pausing its hiking cycle Trump has switched his attention back to OPEC. Oil has rallied 22% since the start of the year so the timing of the tweet is important – oil was already looking overbought and provided a good opportunity for traders to book some profits. Crude is currently up 0.3% at $55.60 although the black stuff is still $2 short of last week’s levels.
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