FTSE 100 gains as sterling weakens ahead of Bank of England rate decision

Traders shifted their attention to the Bank of England’s interest rate decision on Wednesday, with a drop in GBP/USD providing another welcome boost to the FTSE 100, which again touched fresh intraday record highs.

UK equity investors must be pinching themselves. The FTSE 100, the UK’s flagship equity index, has notched up another gain and continued its outperformance versus the S&P 500 and other major equity indices.

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The FTSE 100 was 0.2% higher at the time of writing after touching a fresh intraday record high of 8,364 earlier in the session.

“The FTSE 100 was up over 0.4% just short of 8,350 in early trading. Over the last month it’ s risen 5% strongly outperforming the US market. The S&P 500 is down 0.3% over the same period,” said Derren Nathan, head of equity research, Hargreaves Lansdown.

During much of 2023, the FTSE 100 was a real dog. Its exposure to China, lack of technology stocks, and general defensive nature meant it trailed well behind its US counterpart and much of Europe.

However, resurgent miners and improving sentiments around UK-centric sectors such as banks and housebuilders have helped the index outperform.

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On Wednesday, a dovish tone swept over UK assets sending the pound lower against the dollar on hopes the Bank of England would provide a hint of rate cuts at its meeting tomorrow.

The FTSE 100 tends to have an inverse relationship with the pound, and weakness in sterling played into the strength of the FTSE 100 on Wednesday.

“The FTSE 100 continues to forge to new all-time highs with sterling weakness providing the index with a bit of a kicker,” said AJ Bell investment director Russ Mould.

“A fall in the domestic currency is typically helpful to the FTSE 100 because it boosts the relative value of its dominant overseas earnings.

“Currency traders are betting against the pound ahead of the Bank of England’s latest meeting tomorrow, amid a growing expectation it will cut rates earlier than counterparts at the US Federal Reserve.

“It’s extremely unlikely there will be any action tomorrow but the market will be watching the surrounding commentary for any clues on when the Bank of England might take the plunge on rates.”

As one would expect, the weaker pound led to gains in overseas earners such as HSBC, BAE Systems, GSK, and Unilever. The gains weren’t spectacular but were enough to offset weakness in mining stocks such as Antofagasta and Glencore.

BP continued to fall after releasing very average results yesterday, and oil prices slipped.

Easyjet and IAG were among the top gainers as oil prices declined on hopes of a ceasefire in Gaza. IAG shares were 3.2% higher at the time of writing.

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