FTSE 100 Index Slips as GBP Gains Ground
The USD’s Loss Is the GBPs Gain is the FTSE’s Loss
The interconnectedness of the global economy is a miasma of contrasting realities. For starters, the recent performance of the US economy has put paid to the dollar’s rally, and resulted in sharp declines in the DXY. The US dollar index is currently trading at 99.07, down 0.31% or 0.31. The 52-week high of the US dollar index (DXY) is 103.82, and the 52-week low is 91.92. While not specifically a UK economic indicator, the strength or weakness of the greenback directly impacts the GBP, and hence the FTSE 100 index. In recent days, we have seen a plethora of bad news for President Donald Trump and the GOP. For starters, the failure of House Majority Leader, Paul Ryan to muster the support for the passage of the repeal & replace for Obamacare was a gut punch to Trump. That the bill was pulled even before it went to a vote is significant for Trump. Naturally, the USD plummeted on the back of this news.
- The GBP/USD pair is trading at 1.2579, up 0.89%
- The GBP/EUR pair is trading at 1.1571, up 0.23%
- The GBP/JPY pair is trading at 138.9731, up 0.0882%
The FTSE 100 Index is Falling as the GBP is Rising
The FTSE 100 index moves in the opposite direction to the GBP. A strong GBP is a disincentive to a strongly performing FTSE 100 index. The reason being: 70% + of all revenues generated on the FTSE 100 index are in foreign countries. This means that when the profits are repatriated back to the United Kingdom, they are worth significantly less. This causes the FTSE 100 index to plunge.
A major announcement is slated for Wednesday, 29 March 2017 in the UK. Prime Minister Theresa May will officially inform the EC that the UK is leaving the single-bloc. This will put into play a 2-year period of massive economic uncertainty for the UK economy. A Brexit is associated with high volatility, given that multinational corporations, notably banks and financial institutions will likely leave the UK en masse. Without passporting rights, banks will be hard-pressed to remain loyal to the City of London, while losing European business in the process.
The European Union is preparing for a final consultation with United Kingdom on April 19. Ministers from the EU will be meeting on April 27 prior to the April 29 ratification of the document. Despite negative sentiment for the GBP, dollar weakness is driving GBP/USD strength. Hawkish members of the Monetary Policy Committee (MPC) are looking to raise rates on Friday, 31 March 2017. Many traders have been wrongfooted with the recent moves in the GBP. Strong upside momentum for the pound will likely reverse when the Brexit announcement is made on Wednesday. Nonetheless, there are several important events taking place this week including the following:
- The M4 Money Supply month on month of February will be released on March 29 at 9:30 AM GMT
- The GfK consumer confidence survey for March will be released on March 30 at 11:01 PM GMT -7
- The Gross Domestic Product (GDP) year on year for Q4 2016 will be released on March 31 at 9:30 AM GMT
Traders will want to keep their eyes on the GBP with all of these announcements. Any economic data that falls shy of expectations will naturally result in a weaker GBP and a stronger FTSE 100 index.
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.