Pound Gains and FTSE Slips

The pound rose steeply against the dollar, while the FTSE 100 slipped during the first day back of trading following the New Year break.

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shareprices.com - Wednesday, January 03, 2018

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The day’s trading was sluggish, with the FTSE 100 shedding 0.7 percent from the high point that it touched at the end of 2017. A similar scenario played out in France and Germany. The sense is that the markets have not yet returned to their full vigor, and that they are simply easing themselves back into a normal trading schedule.

The pound is showing strength against both the dollar and the euro, and while this is good news for the UK-focused FTSE 250, it is not a positive for the FTSE 100, which is dominated by companies that take much of their earnings in foreign currency. Those companies have better balance sheets when their earnings are converted back into pounds if the pound is weak.

The FTSE 100 ended 2017 strong, although it had underperformed other markets over the course of the year. Analysts remain optimistic that the UK’s leading index should look stronger heading into 2018, as we start to see some clarity regarding the outcome of the negotiations over the Brexit divorce deal; something which had been a serious cause of concern for many investors, and for the companies in the top flight, towards the end of 2018. The big news over the coming months, however, will be the US Federal Reserve’s stance on interest rates. Rapid rate increases had been expected, but the Fed appears to be adopting a more cautious stance instead.

 

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