Finance

Falling pound puts FTSE on the front foot


Pound banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

Pound banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration (Reuters / Reuters)

The FTSE 100 (^FTSE) broke above all-time highs on Monday and Tuesday in London, with the index supported by a plummeting pound.

The FTSE was trading at an intraday high of 8,077.15. Yesterday’s record close saw the blue-chip index finish at 8,023.87, after rallying by more than 1.6%.

But in dollar terms, the FTSE is still off all-time highs. Many companies that make up the index earn revenue abroad in dollars, so when the pound drops against the dollar, they benefit. This includes miners and oil giants, such as Shell or BP, which dominate the index in terms of market cap.

Read more: UK government borrowing higher than forecast

Sterling (GBPUSD=X) fell to a five-month low against the dollar this week, therefore, propping up multinationals in London’s flagship index.

“The ‘record’ high in sterling terms doesn’t mask the longer-term structural weaknesses,” said Neil Wilson, chief market analyst at Finalto. “But it does seem things may be improving for the UK – inflation is down, growth picking up, real wages seem set to rise for a year or two without leading to a wage-price-spiral, rates coming down and mortgage shock behind us… maybe there are reasons to be cheerful. We will look at this in an upcoming episode.”

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On Tuesday sterling was trading at $1.23, up 0.3% on the previous session.

The pound also rose 0.2% against the Euro (GBPEUR=X).

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