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Pound tumbles as Boris Johnson backs Brexit
Sterling set for biggest one-day fall since 2009 after London major backs campaign for UK to leave EU, helping FTSE 100 pass 6,000 mark.
Update: The pound has tumbled after mayor of London Boris Johnson gave his backing to the campaign for the UK to leave the European Union, heightening investors' 'Brexit' fears.
Sterling fell 2% against the dollar to $1.412 after Johnson's move, set for its biggest one-day fall since March 2009. In his Telegraph column today, the Conservative MP dismissed the deal secured by prime minister David Cameron over the UK's continued membership of the EU. 'There is only one way to get the change we need, and that is to vote to go, because all EU history shows that they only really listen to a population when it says no,' he said.
'The reaction has been concentrated within the currency market since the Bank of England is now almost guaranteed not to raise interest rates in the first half of 2016 before the [referendum] vote,' said Jasper Lawler, market analyst at CMC Markets.
'The fact that gilt yields are flat and UK stocks are higher would suggest Brexit fear has not really taken hold. The vote is still four months away, and despite Mr Johnson's addition to the "out" campaign, the likelihood is that Britain will vote to remain in the EU.'
The slump for the pound follows bearish trading for sterling since the turn of the year. It is the worst performing major global currency in 2016 so far. 'Sterling has endured significant selling pressure in recent months but how much can be attributed to Brexit fears is impossible to calculate,' said Ben Gutteridge, head of fund research at wealth managers Brewin Dolphin.
'Brexit will not have helped matters but the majority of the weakness should be ascribed to the Bank of England's more dovish rhetoric, as well as the ongoing concerns over our current account deficit.'
The pound's fall boosted the FTSE 100, whose members rely on overseas markets for around three-quarters of their earnings. The UK blue-chip index broke through the 6,000 mark, jumping 73 points, or 1.2%, higher at 6,023.
Miners were among the top risers, building on a strong rally from 12-year lows reached in January, as metal prices jumped. Anglo American (AAL) rose 7.5% to 469.5p, BHP Billiton (BLT) was up 5.6% at 773.6p, Glencore (GLEN) added 5.2% to 124.6p and Rio Tinto (RIO) was up 5.5% at £19.96.
'Mining stocks topping the FTSE this morning as commodities prices get a boost, despite a resilient dollar,' said Mike van Dulken, head of research at Accendo Markets. 'All are following the recent global equity rally, benefiting from bets that oversupply will begin to reduce as well as a return of risk-on appetite.'
Most stocks in the FTSE 100 made gains amid a broad-based rally. Among those to fall into the red were HSBC (HSBA), 2.6% lower at 438.2p after full-year profits of $20.4 billion for the year came in well below expectations.
'This is even more significant given the group had already reported numbers for the first nine months and, with the group slipping into loss-making territory during the fourth quarter, we are somewhat surprised that management had not deemed it necessary to issue a profit warning ahead of the results,' said Gary Greenwood, analyst at Shore Capital.
Sainsbury's (SBRY) was also in the red, down 2% at 255.9p, amid fears the supermarket could have to raise its bid for Argos owner Home Retail (HOME) following a rival offer from South African group Steinhoff International.
'Entering a bidding war with Steinhoff, noting the cash element of the new bidder, would show determination but may test the resolve of its shareholders and the assumption of not over-paying given the risks involved, said Clive Black, analyst at Shore Capital.
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After Boris announced he was backing Brexit, sterling suffered its biggest slump in six years. Our Market Mavens discuss. Follow the Market Mavens LinkedIn page for weekly videos, in which our panel of industry experts share their views on financial news
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- Anglo American PLC (AAL.L)
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- Rio Tinto PLC (RIO.L)
- HSBC Holdings PLC (HSBA.L)
- J Sainsbury PLC (SBRY.L)
- Home Retail Group PLC (HOME.L)
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