US dollar weakness helps push pound to fresh post-Brexit vote high
US dollar weakness was driven by fears that monetary policy will tighten quicker overseas.
The pound has hit a new post-Brexit vote high versus the US dollar, despite concerns over what Carillion’s collapse will mean for the wider UK economy.
Sterling climbed 0.5% against the greenback to 1.380 – marking the highest level for the currency pair since June 24, 2016. That was compared to flat trading against the euro, with sterling at 1.125.
US dollar weakness was one of the main drivers, amid fears that monetary policy will tighten quicker overseas where inflation is rising.
Michael Hewson, chief market analyst at CMC Markets UK, said: “The US dollar index has continued its slide, hitting three-year lows against a basket of currencies, as speculation about tighter monetary policy elsewhere in the world weighs on the greenback.”
The fall in the dollar helped to offset worries over the pending liquidation of construction and outsourcing giant Carillion.
“The pound has also found further support trading above the 1.3800 level for the first time since 24th June 2016, the day after the Brexit vote, despite concerns about the effects that Carillion’s collapse might have on the UK economy,” Mr Hewson said.
Carillion – whose shares were suspended before the market opened – entered into compulsory liquidation this morning after failing to secure more money from lenders.
The company was understood to have public sector or public/private partnership contracts worth £1.7 billion – including providing school dinners, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 Army base homes for the Ministry of Defence.
Many small firms are also waiting for Carillion to pay bills going back several months.
The long term affect of Carillion’s collapse is expected to take some time to realise.
The FTSE 100 edged into the red, down by 0.12% or 9. 5 points at 7,769.14 points, alongside its European peers.
Across the continent, the French Cac 40 dropped 0.13% while the German Dax fell 0.34%.
Brent crude prices were charging ahead, up more than 0.3% to rise above 70 US dollars per barrel and trade at its highest levels since late November 2014.
Investors were taking an optimistic view of production cuts by Opec members and other oil majors including Russia, which are expected to help tackle the global energy glut.
In UK stocks, GKN topped the FTSE 100, with shares rising 17.4p to 437.4p, as turnaround specialist Melrose began holding meetings with GKN shareholders in hopes of securing a £7 billion takeover of the engineering firm that was turned down by board members last week.
Rolls-Royce Holdings shares dropped 5.2p to 855.6p as the company confirmed it was launching a strategic review of L’Orange, a German arm of the group that makes fuel injectors for diesel engines and is reportedly up for sale.
William Hill edged lower by 0.3p to 335p, despite reporting that it is on course to beat full-year profit expectations.
But the bookmakers said that a ban on credit betting in Australia and the likely introduction of a “point of consumption” tax in a number of states will put profits under pressure, leading it to undertake a strategic review of its operations in the country.
The biggest risers on the FTSE 100 were GKN up 17.4p at 437.4p, WPP up 37.5p at 1,392p, ITV up 3.95p at 171.95p, and Ferguson up 110p at 5,590p.
The biggest fallers on the FTSE 100 were Micro Focus International down 67p at 2,211p, NMC Health down 70p at 3,032p, International Consolidated Airlines Group down 14.4p at 654.4p, and Standard Chartered down 16.9p at 816.1p.