U.K. stocks slumped on Wednesday, with big multinationals leading the charge south as a rally in the pound spooked investors out of companies that generate most of their revenue abroad. The FTSE 100 index dropped 1.1% to end at 7,643.43, marking its lowest close since Dec. 28. Meanwhile, the pound jumped to $1.4191 from $1.4000 late Tuesday in New York. Sterling, which has climbed as high as $1.4242 on Wednesday, is now trading at its highest level since the U.K.’s Brexit referendum in June 2016, but is still a ways off from the $1.50 handle reached ahead of the vote. U.K. stocks were weighed by the appreciating pound, as a stronger sterling hits earnings for large international
companies that generate the bulk of their revenue outside Britain. About 75% of revenue for the FTSE 100 is generated overseas, so the London benchmark is particularly sensitive to pound swings. The pound rally came partly as investors grew more confident London and Brussels will agree on a Brexit transition deal in coming months, and partly because of a renewed selloff in the dollar.
The ICE U.S. Dollar Index fell to a three-year low on Wednesday after U.S. Treasury Secretary Steven Mnuchinsaid a weaker greenback is good for trade while speaking at the World Economic Forum in Davos, Switzerland.
Analysts have also pointed out that the expected Federal Reserve rate hikes for 2018 largely are priced into the dollar, and that traders now are positioning themselves for other central banks to start tightening.
The rally for the U.K. currency accelerated after British labormarket data showed the unemployment rate in November stayed at the lowest level since 1975 at 4.3%. The number of people in work jumped a surprising 102,000, while wages rose 2.5% as expected. Shares of Antofagasta dropped 0.8% after the miner copper production in the fourth quarter of 2017 fell 1.3% quarter on quarter, while gold production fell 32%. FresnilloPLC put on 3.7% after the miner said fourth-quarter silver production rose 20%. Sage Group PLC
slumped 6.5% after a strong rise in sales still missed analyst forecasts.
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