Stronger pound keeps FTSE under pressure

London-listed stocks took a tumble this afternoon as the pound strengthened in the wake of the Bank of England’s decision to leave rates unchanged.

Following BOE news, retailers, utilities and property firms where among the hardest hit while miners and banks held up. 

In contrast, the US markets roared higher and the Dow Jones Industrial Average reclaimed the 26,000 mark, gaining 0.33% helped by news that the trade freeze between the US and China may thaw slightly. 

US newspapers reported late Wednesday that the US was in the early stages of proposing a new round of talks with China. US President Trump was quick to play this down Thursday but nevertheless the S&P 500 rose 0.30% and the Nasdaq gained 0.57% among some new optimism that big tech firms like Apple may be able to avoid the fallout of a full on trade war. 

Sterling higher as BoE leaves rates unchanged

The pound has perked up against the dollar after the BoE left interest rates unchanged, as was widely expected. 

Sterling strengthened 0.45% against the greenback to trade up at $1.3104, for the moment shrugging off what is happening on the domestic political scene - with a looming challenge to Theresa May’s political leadership and the first set of Brexit deadlines around the corner. 

The BoE indicated that although inflationary pressures are on the increase it would approach any further rate hikes with caution until there is more clarity on the actual Brexit deal and its implications for the UK economy.

ECB starts phasing out stimulus programme

The European Central Bank also held a key meeting today and confirmed that it will start phasing out its stimulus programme for the European economy. The Bank plans to halve its bond-buying from next month before stopping the programme altogether by year end. 

Like the pound, the euro is also strengthening, gaining 0.44% against the dollar. The market ignored other clouds forming on the horizon in the form of reduced trade between the EU and the US and Italy’s worsening debt situation. 

US-EU trade tensions have started affecting Europe’s industrial production which has dropped for the first time in 18 months while economic confidence in the EU has fallen to the lowest in a year.

 And finally the Lira        

The beleaguered Turkish lira, which has lost around 40% against the dollar this year, finally had a respite after the Central Bank of Turkey increased the one-week repo rate to 24%, up 625 basis points and much more than expected. 

The currency traded up 2.9% at 6.1586 against the dollar following the bank’s decision, which came only hours after the country’s President Erdogan issued an order to limit the use of foreign currency in domestic transactions. 

However, with Turkey being embroiled in an ongoing trade dispute with the US it might be too early to assume that the currency is out of the woods yet. 


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.