Sterling retreats from Theresa May's Brexit speech-inspired highs, boosting the FTSE 100

 
Jasper Jolly
UK Pound Rises Above Two Dollars
Sterling has sold off again after a large one-day gain (Source: Getty)

Sterling has fallen back from its strongest one-day performance since 1993, helping to nudge the FTSE 100 back into profitable territory.

The sterling spot exchange rate against the US dollar had fallen by more than 1.1 per cent at the time of publication to trade below $1.23. It had traded well above $1.24 after Prime Minister Theresa May gave some much desired detail around her negotiation strategy for leaving the EU. It fell by almost two-thirds of a per cent against the euro.

The FTSE 100, which often moves inversely to sterling as around 70 per cent of its profits are earned in another currency, edged up by 0.13 per cent at the time of publication.

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Relatively healthy employment figures did not prevent traders taking profits with the sterling outlook still firmly tilted to the downside.

Michael Hewson, chief market analyst at CMC Markets, said: “UK Prime Minister Theresa May’s speech yesterday seems to have simply caused some short term volatility as opposed to a trend change, as investors come to realise that there is still a long road ahead.”

The fall in sterling from 2016 highs above $1.50 before the EU referendum has been precipitous, with investors uncertain about the UK’s prospects.

With the Prime Minister and the chancellor both confirming the UK would lose Single Market membership, there are still significant unanswered questions as to the future trading relationship with the EU, the UK’s largest export market.

Read more: "No deal" or "Bad deal" - Six things we learned from May's Brexit speech

However, these effects are yet to be felt for the most part in the UK economy, which has stayed steady in recent months thanks mainly to the continued strength of consumer spending, which has sustained investment levels.

The labour market has also proven to be resilient since the vote to leave the European Union. Unemployment has stayed at an 11-year low, while the benefit claimant count unexpectedly decreased in December.

Chris Hare, an economist at Investec, wrote in a note that the data “suggest the five-year bull market for UK jobs is over".

“The labour market might be on the cusp of experiencing a period of (mild) stagflation – higher wage inflation accompanied by sub-par jobs growth, given Brexit headwinds.”

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