The pound has jumped to a five-week high against the dollar, weighing on the FTSE 100, as chief European Union negotiator said it was ‘realistic’ to expect a Brexit deal within ‘six to eight weeks’.
The pound jumped a cent against the dollar to trade at $1.302 while the euro fell a third of a penny against sterling to 89.1p.
That weighed on the FTSE 100, which gave up the morning’s gains to trade seven points in the red at 7,271.
A stronger pound tends to weigh on the UK blue-chip index, whose stocks rely on overseas markets for around three-quarters of their earnings.
‘Once again a Brexit-inspired movement from the pound came to dominate an otherwise quiet afternoon session,’ said Connor Campbell, analyst at Spreadex.
‘If one person can shift sterling at the moment it is Michel Barnier. The currency is desperate for any signs of good news from the EU’s chief negotiator.’
Banks have jumped to the top of the FTSE 100 amid investor hopes that Italy will avoid a clash with European Union rules as the country prepares its 2019 budget.
The UK blue-chip index rose 24 points, or 0.3%, to 7,301, with lenders leading the way.
Royal Bank of Scotland (RBS) was up 2.2% at 250.4p, Barclays (BARC) added 1.4% to 177p and Lloyds (LLOY) rose 1.3% to 59.5p.
Bank stocks were among the beneficiaries of reassurances from Italy’s government that the upcoming budget would respect EU fiscal rules.
Investors had fretted that the government, featuring the anti-establishment Five Star movement and far-right League, would push for higher spending in their first budget.
But economy minister Giovanni Tria said yesterday measures such as a minimum income, pension reforms and tax cuts, would be implemented ‘gradually’.
Banks were joined at the top of the index by Morrisons (MRW), as analysts at HSBC raised their rating on the supermarket to ‘buy’ from ‘hold’.
On the FTSE 250, shares in RPC (RPC) soared 17.2% to 801p as the plastics group said it was in talks over a possible sale to private equity investors Apollo Global Management and Bain Capital.
‘The next month will be pivotal for RPC,’ said Peel Hunt analyst Harry Phillips.
‘If there is no bid, the bears will take hold, while if there is a bid we expect it to come at a healthy premium to Friday’s close of 684p.’
Among ‘small-cap’ stocks, Debenhams (DEB) tumbled 10.6% to a record low of 11.5p on reports the embattled retailer had asked KPMG advisers to assess its options.
Reports claimed possible measures included a company voluntary agreement, a form of insolvency proceedings that can be used to close stores and renegotiate rents.
In response to the reports, chairman Ian Cheshire said the board ‘continues to work with its advisers on longer term options, which include strengthening our balance sheet and reviewing non-core assets’.
‘This activity is in order to maximise value for shareholders and protect other stakeholders, including our employees.’