Pound loses ground as US dollar strengthens on Federal Reserve comments
Analysts took Federal Reserve comments as a sign that three rate hikes were still on the table.
The pound tumbled against the dollar as comments from new Federal Reserve chairman Jerome Powell were taken as a sign that a series of US interest rate hikes were on the horizon.
Sterling was trading as low as 1.385 versus the American currency in afternoon trading, before recovering slightly to trade lower by around half a per cent at 1.389.
That is compared with the pound’s standing against the euro, trading higher by around 0.2% at 1.135.
Following comments from new Fed chair Jerome Powell the markets seriously lacked a sense of direction this Tuesday – that is, all bar the dollar, which was more than happy with what it heard. Connor Campbell, financial analyst at SpreadEx
The currency reaction followed a statement by Mr Powell which analysts took as a sign that three rate hikes were still on the table.
Connor Campbell, a financial analyst at SpreadEx, said: “Following comments from new Fed chair Jerome Powell the markets seriously lacked a sense of direction this Tuesday – that is, all bar the dollar, which was more than happy with what it heard.”
He explained: “The Fed chair claimed the US economy ‘remains strong’, and that ‘some of the headwinds’ it has faced have ‘turned into tailwinds’, arguing in particular that ‘fiscal policy has become more stimulative’.
“These kinds of comments, largely in line with where Yellen left off, keep three FOMC (Federal Open Market Committee) rate hikes on the table in 2018, a rebuke to those who thought Powell might sound a bit more dovish on his first time in the spotlight.”
Movements on the FTSE 100 were more muted, having ended the day down 0.1% or 7.13 points at 7,282.45 points.
Across Europe, the French Cac 40 closed flat, while the German Dax fell 0.3%.
In oil markets, Brent crude prices dropped 1.2% to around 66.68 US dollars per barrel.
The dollar-denominated commodity was feeling the effects of the stronger American currency, which made it more expensive for international investors.
In UK stocks, Sky shares surged 226.5p to 1,331.5p after receiving a takeover offer by Comcast worth £22.1 billion.
It stands to disrupt Walt Disney’s 66 billion US dollar (£47 billion) attempt to buy Fox’s entertainment assets, which include a stake in the satellite broadcaster.
Persimmon rose 116p to 2,604p as the housebuilder revealed that bottom line profits jumped by a quarter to £966.1 million, and said it was “encouraged” by the start to 2018 despite Brexit uncertainties.
Standard Chartered ended the day up 10p at 839p. Investors were cheered by news that the lender returned to profit in 2017, prompting it to restart shareholder payouts which it cancelled in 2015.
Virgin Money jumped 15p to 279.5p after reporting a 28% rise in underlying pre-tax profits to £273.3 million, as mortgage balances and retail deposits climbed 13% and 10% respectively.
Greggs fell 20p to 1,292p as rising costs linked to a major investment programme ate into annual pre-tax profits, which fell from £75.1 million in 2016 to £71.9 million last year.
The biggest risers on the FTSE 100 were Sky up 226.5p to 1,331.5p, Persimmon up 116p to 2,604p, Evraz up 12.1p at 438p, and Ashtead Group up 38p at 2,108p.
The biggest fallers on the FTSE 100 were Fresnillo down 59p at 1,273p, Associated British Foods down 65p at 2,661p, Randgold Resources down 142p at 5,948p, and Reckitt Benckiser Group down 139p at 5,841p.