Pound plunges as UK markets rally to year high
UK markets rallied to a 12-month high, driven by growing confidence about the economic outlook and signs that interest rates will stay low for the next five years.
The FTSE 100 broke through the 5200 barrier, finishing the day up 48.3 at 5210.17 - its highest close since September 2008.
Traders were feeling bullish following a strong finish in the US last week as the Dow Jones also hit a year high. The blue-chip index was driven by the oil giants and a rally in Vodafone, as investors prepared for the next batch of US earnings out this week.
The pound moved in the other direction, crashing to its lowest level against the Euro in almost seven months. Sterling dropped to a low of 1.069 against the European single currency, a level not seen since the end of March.
Currency traders were reacting to a report predicting interest rates will stay low for the next five years, limiting the reward on borrowing in sterling.
The Centre for Economics and Business Research (CEBR) forecast that UK interest rates would remain at 0.5pc until 2011 and not reach 2pc until 2014.
The lack of yield has also weighed on the dollar, as US interest rates are near zero.
Mark O'Sullivan, dealing director at Currencies Direct, said: "The trouble is, if you compare sterling and the dollar it is like two drunks propping up the bar."
He said economic data - such as the inflation figures out today and unemployment statistics on Wednesday - could cause further volatility in sterling. "Negative news this week opens the door to parity [with the Euro] by the end of the year."
Sterling has also been tumbling on growing fears about the UK's fiscal outlook.
Neil Mellor, currency strategist at the Bank of New York Mellon, said the pound weakened significantly after Bank of England governor Mervyn King expressed concerns about the UK's budget deficit in July.
Mr King has indicated he is happy for the pound to remain weak in the hope that it will drive exports.
Concerns that banks are still not lending and that the Bank of England could choose to extend its £175bn quantitative easing (QE) scheme to boost the money supply also weighed on sentiment. The CEBR report predicted that the Bank of England will boost QE by £75bn to £250bn.
Nessun commento:
Posta un commento