FTSE 100 hits new high as pound struggles

Business & Economy 29 May 2017
FTSE 100 hits new high as pound struggles

FTSE 100 hits new high as the value of the pound drops

The stock market beat its previous intraday high, set last week, by 15 points off the back of a drop in the value of sterling.

Image: The FTSE 100 charts the performance of the top 100 companies listed on the London Stock Exchange

By Clare Downey, Business Reporter

The FTSE 100 rose to new highs on Friday, surpassing its previous intraday record in morning trading before advancing even further.

The index, which tracks the value of Britain's 100 biggest companies, grew by more than 35 points to 7554.2 after UK political polling figures and US growth data caused the dollar to rise against the pound.

It then dropped slightly but still closed at a record 7547.6, more than 25 points above the previous FTSE 100 closing high of 7522.

Sterling fell to a two-month low against the euro over the course of the morning and is still struggling to make gains.

The previous intraday record for the FTSE of 7533.7 was set just last week as the market continues its upward march following the EU referendum last June.

The value of the FTSE 100 often rises when the value of sterling falls because many of the constituent firms conduct much of their business in dollars.

This can mean they make more money when the pound is weak, boosting their share price.

As a result, the FTSE 100 has benefited from the collapse in the value of sterling since the UK voted to leave the EU.

In this photo illustration the new £1 pound coin is seen on April 4, 2017 in Bath, England
Video: Why stronger pound hurts FTSE 100 shares

Friday's rise was partly caused by an announcement that the US economy grew faster than first thought during the first three months of the year.

Initial estimates of the country's GDP performance suggested growth of just 0.7% between January and March, but this has now been upgraded to 1.2%.

The better-than-expected figures pushed the value of the dollar upwards, meaning sterling is now worth more than a cent less than it was this morning.

But the drop in the pound was already under way when the US data was released, possibly thanks to polling figures which appear to show Labour narrowing the gap against the Conservatives ahead of the General Election on 8 June.

Jeremy Corbyn
Image: Many have pointed to polling suggesting Labour is gaining on the Conservatives as a reason for the drop in the pound

Mihir Kapadia, CEO and founder of Sun Global Investments, said the potential for a tight race may be causing unease in global trading.

"A closer result or hung parliament will weaken the government," he said.

"It would also further complicate the Brexit process.

"The pound could continue to be under pressure until polling closes if it continues to be a close race."

Original Article

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