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FTSE Down On GBP Rally

Published 06/14/2017, 11:54 AM
Updated 03/09/2019, 08:30 AM

The FTSE 100 closed lower on Tuesday as sterling rallied due to the inflation rate rising to a four-year high. The markets were also wary of the ongoing political uncertainty in the United Kingdom following the results of the general elections held last week.

Despite opening higher on Tuesday, the FTSE 100 closed 0.15% down to 7,500.44 while the FTSE 250 edged 0.90% to 19,859.54 along with a number of Wall Street stocks and European indices. Only the consumer, tech and utility stocks under the index gained higher.

By Wednesday, European stocks have recovered slightly with technology stocks holding back recovery due to its losses earlier this week as the market awaited the announcement from the Federal Reserve of another interest rate hike.

Analysts have noted the FTSE 100’s negative level while the FTSE 250 traded 1% higher during the trading session before closing lower. Despite rising by as much as 0.4%, the stronger sterling erased the gains during the day.

The GBP/USD pair traded back up to $1.27 after a strong consumer-price inflation in the United Kingdom rose 2.9% to a four-year high at a rate that beat most analysts expectations.

The pound traded up to $1.2736 from having previously traded at $1.2260 during late Monday trading. A stronger pound may send the FTSE lower due to the amount of revenue generated by the stocks and companies outside the United Kingdom. Examples of these companies are Unilever (NYSE:UN), British American Tobacco (NYSE:BTI) and Imperial Brands (LON:IMB), which lost around 0.8-1% during the trading session.

A policy meeting is set to be held by the Bank of England on Thursday. On the other hand, UK wage data was released during Wednesday’s trading session. The data revealed that living standards continued to decline in the UK with the wage growth standing only at 2.1% from April down from market expectations of 2.3% while unemployment rates remain at 4.6%.

Political issues remain to be one of the market’s current concerns as the British government is currently left hanging. U.K. Prime Minister Theresa May has announced her determination of forming a new minority government through the support of the Northern Irish lawmakers despite losing the general elections. May met with the Democratic Unionist Party on Tuesday.

The Prime Minister is also keen on proceeding with the Brexit negotiations which is expected to start this June 19 where May will be meeting with the European Union regarding the terms of Britain’s exit from the EU.

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