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FTSE 100 hits record high on falling pound FTSE 100 hits record high as pound falls further
(35 minutes later)
The FTSE 100 index has gone above its all-time intra-day high, boosted by further falls in the pound. The FTSE 100 index has gone above its all-time high during a day's trading, boosted by further falls in the pound.
The UK's benchmark index broke through its previous record intra-day level of 7,122.74 to hit 7,129.83 points. The UK's benchmark index broke through its previous record intra-day level to hit 7,129.83 before losing some ground.
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.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.
Sterling slipped below $1.23 in morning trade, its lowest level since last week's flash crash. Sterling slipped below $1.23 and €1.11 to its lowest value since last week's flash crash.
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.
"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."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 has fallen more than 4% against the dollar in the past week and analysts warned it could still drop further. The last time the FTSE 100 was at this level was 27 April 2015, when it reached 7,122.74 points during trading before falling back slightly to finish at a record closing high of 7,103.98.
"Brexiters might point to the FTSE's rise as a sign of strength but this is very much a story of sterling weakness boosting foreign earnings - which account for around two-thirds to three-quarters of FTSE 100 company revenues," said Neil Wilson, a markets analyst at ETX Capital.
Firms with large foreign businesses, such as Burberry, were among the big winners on Tuesday.
Shares in domestic companies, including housebuilders, were also doing well because of hints from the Bank of England that interest rates will remain low for a while, Mr Wilson said.
'Getting worse''Getting worse'
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. The pound has fallen more than 4% against the dollar in the past week, even putting aside Friday's flash crash - when it tumbled to around $1.18 before recovering.
Some traders said the further falls on Tuesday were 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.
Others pointed to leaked documents warning that leaving the EU single market could cost the Treasury more than £66bn a year.Others pointed to leaked documents warning that leaving the EU single market could cost the Treasury more than £66bn a year.
"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."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.
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. Analysts said the pound could still fall further.
"Sterling seems to be looking for a level and it's really unclear where that could be," said Neil Wilson at ETX Capital. Mr Wilson said: "Sterling seems to be looking for a level and it's really unclear where that could be."
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". He added that Friday's flash crash could now potentially be seen as "a very tentative toe in the water".
'Flash crash was right''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.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.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."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''Not a crisis'
Sterling has now fallen about 18% against the dollar since the referendum to lows not seen since 1985.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.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."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.""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."
He added that a fall in sterling was "inevitable, whatever the outcome of the referendum" because it had been one of the world's most overvalued currencies.
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