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The pound surged to levels not seen in six months on Wednesday, amid rising optimism that the Conservative Party will comfortably win the coming General Election. But those currency gains weighed on the FTSE 100.
The pound GBPUSD, +0.7387% shot to $1.3087 against the dollar, a gain of 0.7%, and bringing it to the May 2019 high. The FTSE 100 UKX, -0.06% struggled, flat at 7,154.81, bucking an upbeat trend that saw sharp gains for regional European indexes and U.S. stock futures on renewed optimism over U.S.-China trade talks.
The pound’s gains weighed on U.K.-based multinationals, which earn the bulk of their profits outside the country. Also supportive for sterling was economic data showing the Markit services purchasing managers index was revised up to 49.3 in November from an initial 48.6 reported previously. That still points to the steepest fall in business activity since March, said Markit.
Analysts said the pound was rising on politics, as the December 12 General Election nears. “While we have seen gains for the Labour Party, there is a feeling that it may be too little too late, as we stand just eight days from election day,” said Joshua Mahony, senior market analyst at IG.
“From a market standpoint, a Conservative majority would likely come with a sharp surge in the pound, and thus the upside we are seeing in sterling reflects the market willingness to take on some risk with a view to getting into this long-GBP trade early,” he said.
Within stocks on the move, among smaller-cap companies, shares of international advertising agency M&C Saatchi SAA, -46.17% plunged 45%. That was after the company warned that underlying profit before tax will be “significantly below” levels seen at the time of interim results last summer, owing to weaker-than-expected trading and higher-than-forecast costs.
On the FTSE 100, mining stocks and banks led the gains, with Evraz EVR, +2.58% up 3.8% and Antofagasta ANTO, +2.18% climbing 3.2%. Lloyds Banking Group LLOY, +1.49% gained 2%.
