Pound goes into tailspin, but the FTSE climbs

4 October 2016

This morning saw the pound fall to a 31-year low against the US dollar as markets reacted to speeches from the Conservative Party conference.

£1 now buys $1.27 dollars compared to $1.29 over three decades a go in June 1985. The lowest it’s ever been against the dollar is $1.05, in March 1985.

The pound was also down this morning against the euro, falling by 0.3% compared to yesterday, to €1.14.

The main drivers for the falls appear to be Chancellor Phillip Hammond’s statement that the UK economy would be a “rollercoaster ride” in the coming years, and Prime Minister Theresa May’s speech where she announced that Article 50, the clause that will set Brexit rolling, would be activated by the end of March 2017.

The currency markets appear to be unsatisfied with the lack of real detail on Brexit, which it was hoped the conference would provide. The news that the single market won’t be the focus of Brexit negotiations has just added fuel to the fire and turned the pound into something people want to sell, quickly.


Taking stock

The flipside of today’s news is that the FTSE 100 has pushed past 7,000 (currently it’s at 7,068) for the first time since May 2015.

Shares have been aided by the pound sell-off, as many companies listed on the UK’s premier index earn profits abroad, and therefore make more money when buying pounds with these earnings. Its highest-ever intra-day level is 7122.74,  on 27 April 2015.

The FTSE 250 meanwhile, which consists of the 101 to 350 biggest UK-listed companies, has hit a new record high this morning of 18,409 points. This is down to the same reasons as those driving its bigger brother - its six biggest risers so far this year are all based overseas.


Tom Stevenson, director of personal investing for Fidelity International, says: “This is obviously good news for UK investors and no-one would complain about the market finally moving decisively on from its 1999 dot.com bubble peak.

“But it should be remembered that the main reason shares are rising today is the remarkable slide in the pound to its lowest level since 1985. It’s good for UK exporters and overseas earners but for foreign stock market investors it takes the edge off the latest gains.”

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