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Pound falls again while FTSE 100 nears record FTSE 100 hits record high on falling pound
(about 3 hours later)
The pound continued to come under pressure in early morning trade, while the FTSE 100 share index headed towards a record high. The FTSE 100 index has gone above its all-time intra-day high, boosted by further falls in the pound.
The value of the pound has fallen sharply over the past few days on worries about how the UK's economy will be affected by Brexit. The UK's benchmark index broke through its previous record intra-day level of 7,122.74 to hit 7,129.83 points.
Sterling was down 0.6% against the dollar at $1.2284 and slid 0.4% against the euro to €1.1051. Analysts said the shares were lifted by a weak pound, which fell on fresh worries about how the UK's economy will be affected by Brexit.
The FTSE 100 was up 15.33 points at 7,112.83. Sterling slipped below $1.23 in morning trade, its lowest level since last week's flash crash.
That put the UK's benchmark share index above its record closing high of 7,103.98, but below its record intra-day level of 7,122.74. The fall in the pound has boosted the FTSE 100 as many of the companies in the index generate most of their revenues abroad.
The fall in the pound has boosted the FTSE 100 as many of the companies in the index generate most of their revenues abroad. A weaker pound means overseas revenues are worth more when they are converted back into sterling. A weaker pound means overseas revenues are worth more when they are converted back into sterling.
Analysts said that the pound could still have further to fall. "UK investors will once again be cheering the impact of a falling pound, as the drop in sterling once again works its magic on the FTSE 100," said Chris Beauchamp, chief market analyst at IG.
"[The pound-dollar rate] crashed through the $1.23 handle to around $1.2284, its lowest level since last week's gyrations. It's not unreasonable to think that ferocious flash crash was just a very tentative toe in the water and the pound is now plunging headlong into the abyss," said Neil Wilson at ETX Capital. The pound has fallen more than 4% against the dollar in the past week and analysts warned it could still drop further.
"Sterling seems to be looking for a level and it's really unclear where that could be and so bargain hunting is a risky game to play at the moment." 'Getting worse'
Share movements Some traders said Tuesday's fall in sterling was prompted by a report that Russian bank VTB may move its European hub away from London, adding to worries of foreign investment leaving the UK.
On the stock market, shares in recruitment firm PageGroup - formerly known as Michael Page International - were up 3% despite the company saying profits at its UK business had been hit by the uncertainty following the Brexit vote. Others pointed to leaked documents warning that leaving the EU single market could cost the Treasury more than £66bn a year.
Profits in the third quarter of the year fell 4.7% in the UK to £37.8m. "The sell-off is now becoming worse, with the pound falling for the fourth day in a row," said Carlo Alberto De Casa, chief analyst at ActivTrades.
However, a strong performance in its Europe business meant profits across the group as a whole rose 1.3% to £158.6m. PageGroup also said the weaker pound would add £45m to its gross profits over the year. The pound also dropped below €1.11 against the euro, adding to predictions from some analysts that it could reach parity in the next 12 months.
Shares in McCarthy & Stone jumped 8% after the retirement home builder said business had returned to "more normal levels" since the end of August. "Sterling seems to be looking for a level and it's really unclear where that could be," said Neil Wilson at ETX Capital.
In the immediate aftermath of the Brexit vote, the company saw higher cancellation rates. However, it said that over the past five weeks, it had seen an increase in new inquiries and "first-time visitors to our developments have been noticeably ahead of the prior year". He added that Friday's flash crash - when the pound tumbled to around $1.18 before recovering - could now potentially be seen as "a very tentative toe in the water".
'Flash crash was right'
Also on Tuesday, a senior official at Norway's sovereign wealth fund, the world's largest, said the flash crash had correctly reflected expectations for the UK economy.
The fund is one of Britain's biggest foreign investors, holding shares in most large UK companies and co-owning Regent Street.
Oeyvind Schanke, the fund's chief investment officer for asset strategies, told Reuters: "I do believe in market forces and I do believe that investors have an ability to price. And what that price move indicates to me is that they are worried about what is happening in the UK."
'Not a crisis'
Sterling has now fallen about 18% against the dollar since the referendum to lows not seen since 1985.
However, the UK is not facing a "currency crisis", according to Gerard Lyons, the former chief economic adviser to Boris Johnson and a leading Brexit campaigner.
"There's no hard and fast rule, but you tend to know a currency crisis when you see it," Mr Lyons, who is now a strategist at Net Wealth Investments, told the BBC.
"Effectively a currency crisis is when it's seen as out of control and it starts to force policy to do things that are not in the best interests of the domestic economy."
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