In just two trading sessions, the pound dropped almost 2pc after Prime Minister Theresa May announced on Sunday that the formal process to remove the UK from the EU will begin by the end of March next year, reports The Telegraph.
Yesterday, the pound extended its losses, falling by as much as 1pc in intraday trade to $1.2720 against the dollar, its weakest level since mid-1985. It also dived to a three-year low of €1.1363 against the euro.
John Wraith, of UBS, said the transformation of anticipated risk events from high probability to a certainty, in this case “an unknown date to a confirmed one”, can be “a powerful catalyst” for currency weakness.
As a result of its concerns about economic and political headwinds, investment bank UBS has reiterated its forecasts for the end of 2017, when it sees the pound at $1.20 against the dollar. It also thinks the EUR/GBP could rise to parity.
A focus on the benefits of the sharp depreciation in the pound catapulted the domestically-focused FTSE 250 to a fresh intraday record high. The mid-cap index climbed by as much as 2.3 per cent to 18,607.13 in intraday trade.
Meanwhile, the internationally-focused FTSE 100 charged into bull-market territory, surging more than 20 per cent from its February nadir to 7,121.93 in intraday trading – a whisker away from its all-time record high of 7,122.74. However, it finished at 7,074.34 – up 90.82 points, or 1.3 per cent.
Nick Peters, of Fidelity, urged investors to remain cautious as around 75 per cent of the earnings from London’s blue chip companies come from out the UK, so the pound depreciation effectively makes these earnings worth more.
“In essence, the boost to the FTSE 100 has come about because investors believe the UK economy is in a worse place,” Mr Peters added.
Although the FTSE 100 and 250 have surged since referendum, the FTSE Local UK index, which includes London-listed companies that make at least 70 per cent of their revenue in the UK, remains 4.7 per cent off its pre-Brexit levels.
In an embarrassing u-turn, the International Monetary Fund has said the UK will be the fastest growing major economy this year. It follows earlier predictions that a vote to leave the EU could plunge the country into recession and trigger a stock market crash.
It praised the actions of the Bank of England post-Brexit, for helping to “maintain confidence” in the economy. The IMF now expects the UK economy will grow by 1.8 per cent this year – that’s above its earlier forecast of 1.7 per cent (which it issued in July) and puts the UK on track to be the fastest growing G7 economy this year.
Meanwhile, it left its forecast for global growth unchanged at 3.1 per cent – which would represent the slowest rate of growth since the global financial crisis.
