FTSE 100 closes on record high after sterling falls

The FTSE 100 reached a new high on Monday, as the rising expectation of UK interest rate reductions weakened sterling. This also boosted London corporate valuations.

The blue-chip index in Britain rose by 1.6 percent to 8,023.9, surpassing its previous high of 8,014.3 set in February 2011.

The dollar’s recent gains over the pound fueled the broad rally that swept most of the FTSE companies. Companies that make the bulk of their revenue in foreign currencies benefit from a lower exchange rate. Sterling dropped 0.3 percent to $1.2333, the lowest level since mid November.

The benchmark underperformed its rivals, such as S&P 500, this year. However traders have closed the gap in the last month. They switched from technology stocks to commodities and boosted some of the FTSE’s largest sectors.

As a result of differing expectations about borrowing costs, the pound is losing value against the dollar. The US Federal Reserve is increasingly expected to keep interest rates high for longer while the Bank of England will start lowering rates in August.

Emmanuel Cau is a Barclays strategist. “It all comes down to the rate differentials,” he said. The markets have already priced in many of the Federal Reserve’s rate cuts that they had expected earlier this year. But they are still hopeful about the Bank of England’s and European Central Bank’s.

The FTSE 100 is now up 3.9 percent since January, beating the Nasdaq Composite which has risen by 2.1 percent. S&P has risen 4.4 percent since January, while Germany’s Dax is up 6.6% and France’s Cac 40 is up about 6.6 percent.

Despite the new high for the FTSE index, UK stock values remain at a discount to US peers, a reflection of years of underperformance. The benchmark index is only 16 percent above its dotcom high of 1999, while the S&P 500 has more than tripled in value over the same time period.

Frederique Carrier, RBC Wealth Management’s head of investment strategy in the British Isles, and Asia, said: “In a worldwide context, performance is still disappointing.”

The index has not yet reached the intraday record of 8,047.06, which was also achieved in February last year, but it has seen recent gains from energy and financial stocks.

Oil majors have been buoyed by the rise in crude oil prices. Crude oil has now surpassed $90 per barrel for the first month since October. Shell has contributed nearly a third to the FTSE 100 gains in 2024.

Bank stocks also have performed well, with Barclays and NatWest each up over 20 percent, helped by signs the UK economy has emerged from its mild recession that it fell into last year.

Jason Da Silva is the director of global investments strategy at Arbuthnot Latham. He said, “Growth looks more resilient than markets expected. This is good for energy prices and banks, so we’ve got a setup for some of the most significant sectors in the FTSE 100.”

The UK’s gross domestic product (GDP) grew in February for the second month in a row, largely due to an increase in manufacturing.