The FTSE 100 slumped as the pound soared, but the relentless rise of the big US tech companies continued on a choppy day’s trading.
London’s blue-chip stock index slid 1.8 per cent to stand at 5,859 points in afternoon trading. The FTSE 250 index of mid-cap firms shed one per cent.
The FTSE was badly damaged by sterling which jumped 0.6 per cent to $1.345, an eight-month high, as the dollar dropped. A higher pound makes the overseas earnings of FTSE firms worth less.
US stocks rose, with the tech-heavy Nasdaq climbing 0.9 per cent and the S&P 500 rising 0.3 per cent. The seemingly unstoppable rise of big tech stocks meant that Apple became worth more than the entire FTSE 100 index.
Germany’s Dax rose 0.1 per cent after the government predicted the economic decline this year will be better than expected.
The continent-wide Stoxx 600 was 0.3 per cent lower. It gave up some of its earlier gains after a survey showed the Spanish manufacturing sector’s recovery stalled in August.
The dollar’s 0.1 per cent decline against a basket of other currencies took the currency to its lowest level since the spring of 2018.
The greenback has been hit hard by the coronavirus pandemic. Investors have sold the currency in favour of stocks and have been put off by the US’s chaotic handling of coronavirus.
Sterling’s stellar rise hits FTSE 100
But in recent days, the US Federal Reserve’s announcement of a more relaxed approach to inflation and employment has weighed on the dollar.
Analysts took Fed chair Jay Powell’s speech last week to mean the central bank will keep interest rates lower for longer. That limits the attractiveness of dollar-denominated investments.
The sharp fall in the dollar has helped other major currencies. But the stronger pound weighed on the FTSE 100, however, as the market reopened after a public holiday yesterday.
The biggest faller on London’s main index was jet engine-maker Rolls Royce. Rolls tumbled 12.2 per cent after Credit Suisse cut their price target for the stock to 200p from 210p. It last stood at 212p.
Neil Wilson, chief market analyst at Markets.com, said: “There are Brexit risks ahead [for the pound] – talks recommence next week – but for the moment the major driver of this is the dollar’s weakness.”
London lenders suffer
FTSE 100 banking stocks were particularly weak, with Lloyds, Barclays, Natwest, and HSBC all falling more than four per cent.
Lenders have been pummeled during the coronavirus pandemic. They have set aside tens of billions of pounds for bad loans and have been squeezed by interest rate cuts.
Elsewhere, British Airways-owner IAG was also struggling, slipping 7.2 per cent.
It was hit by reports that favourite holiday destination Portugal is likely to be placed back on the UK government’s quarantine list after only recently being removed.
The fall in the FTSE came after the index posted its best August since 2014. Yet Fawad Razaqzada, market analyst at trading platform Think Markets, said: “That’s not to say the FTSE had a great month.”
“The UK benchmark was one of the weakest links last month and it started today’s session in a similar fashion.”