After its super-charged September ended on a sour note, the pound’s October has started in the worst way possible, with the currency posting its largest decline against the dollar since the day after June’s general election.
Cable dropped just shy of 1%, forcing sterling below $1.33 for the first time in 2 and a half weeks. Even against the euro, which is dealing with the aftermath of the Sunday’s violent scenes in Catalonia, the pound struggled, falling 0.4% to lurk just above €1.13.
There are a few potential reasons why sterling is flagging. The dollar was lifted last week by hawkish comments from Janet Yellen and the long-awaited reveal of Trump’s tax plan, before receiving the extra boost of the fastest month-on-month ISM manufacturing PMI growth in 13 years this Monday. As for the euro, though it has a Spanish headache, it also saw confirmation of a 6 and a half year high region-wide manufacturing reading this morning.
In terms of more home-grown concerns, a larger than forecast drop in the UK manufacturing PMI followed last Friday’s unexpected downward revision to the country’s annualised Q2 GDP reading. There’s also concerns over the fractious Tory conference - the perception that Theresa May has lost control of her party - and what this means for the already stalling Brexit talks between David Davis and Michel Barnier.
Sterling’s suffering certainly pleased the FTSE, which surged 0.8% to hit 7430, its best price in almost 3 weeks. And though the euro is punishing the pound, the currency plunged half a percent against the dollar, allowing both the DAX and the CAC to maintain a 0.5% rise (the IBEX was understandably less chirpy, dropping nearly 1.5%).
As for the Dow Jones, the dollar’s latest romp couldn’t prevent the index from hitting yet another all-time high. The US index rose 70 points after the bell, and now sits at a record peak of 22465.
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