The pound rose to levels not seen on Wednesday in three years, making it one of the strongest currencies in the world. However, this had a detrimental effect on London stocks.
The pound hit an intraday high of $ 1.4230 against the dollar, most recently trading at $ 1.4110. The FTSE 100, meanwhile, was down 0.2%, trailing regional continental indices as it was exposed to multinational companies that generate revenue from overseas sales. A heavy pound can make these goods more expensive.
The first of three factors driving the pound higher is the European Union in the UK. Trade deal, said Jane Foley, senior FX strategist at Rabobank, in a statement to clients.
“More recently, the reflation trade has started to turn into the vaccine trade, and with the UK's rapid rollout program, gilt yields have increased slightly more than those of their competitors. This has given the pound additional support. The third part of the bull run can be explained by the fact that the BoE [Bank of England] took more than expected in early February, ”said Foley.
The return on 10 year gold
TMBMKGB-10Y,
0.757%
was trading at just under 0.8%, a level that has not been reached for more than a year. Global bond yields have risen in hopes that COVID-19 vaccines will get the economy going again faster than expected.
Foley's final point has led to the view that negative rates in the UK are off the table and markets are examining the potential for higher rates over two years.
She also said there is speculation of pent-up demand in the pound, suggesting that investment levels in the UK have been low in recent years due to the uncertainty surrounding Brexit. Shadows remain on this front, however, as the services sector is largely "out in the cold" and has excellent conversations with the financial services sector as well as bureaucracy-related issues at UK borders.
Elsewhere in London stocks of heavyweight energy company BP
BP,
+ 4.81%
BP,
+ 4.31%
and Royal Dutch Shell
RDS.A,
+ 2.56%
RDSA,
+ 2.57%
increased by 4% and 2%, respectively.
Lloyds Banking
LYG,
-0.23%
LLOY,
+ 0.43%
reported almost halved pre-tax profit for the fourth quarter of 2020, but announced it would resume dividend payments. Stocks fell 1%.
Real estate firms climbed after The Times reported that Chancellor Rishi Sunak could extend stamp duty leave by three months. Stamp duty is a property tax on buyers. Land Securities shares
COUNTRY,
+ 3.54%
and British country
BLND,
+ 3.83%
were among the winners, up 4% each.
