The Fall of the Pound Dampens Elation of Month-Long FTSE 100 Increase

The Fall of the Pound Dampens Elation of Month-Long FTSE 100 Increase

The FTSE 100 index enjoyed a December 2016, and New Year on a month-long trend of significant growth, as the index continues to increase subsequent to the Brexit referendum.

From the June 23 referendum on Britain’s membership of the E.U. the pound has maintained a general trajectory of significant increase, albeit maintaining a simultaneous notion of considerable volatility. Managing to lift itself from the nosedive experienced in August of 2016, when the index dropped from a high of 6756.20 on August 10 2015, to 5768.80 on August 24, prior to reaching a floor of 5574.60 on February 11 2016, thus completing a 1181.60 point decline.

Since it’s location of the bottom in mid-February the index maintained a modest recovery, residing between the 6100 and 6400 barriers for much of March to July, prior to the U.K. vote to leave the European Union.

It was Britain’s exodus from the E.U. that propelled an upward surge back to the levels experienced prior to it’s nose dive. With the index back in the 6900 region by mid-August.

However, despite the significant, rapid increase subsequent to the Brexit vote, the FTSE 100 did not experience a rally of such sustained increase until December 2016. Such a rally of which has been maintained.

For the past 17 trading sessions the FTSE has enjoyed a period of consistent increase, rising from 6981.00 on December 16, to 7270.40 at 14:50 EST. Marking a considerable rise 289.40 point growth.

However, despite the surge, the weakness of the pound has rendered the recent rally somewhat less profitable than other rallies experienced by the Dow Jones Industrial Average and the S&P 500.

Experiencing a 16% return on a sterling-denominated investment on the day of the Brexit referendum, a British FTSE 100 investor would have made respectable gains indeed. However, had they invested in the S&P 500 index, their return would be double that achieved from an analogous investment in the FTSE 100 – at 32%. Such a difference is due as much to the weakness of the pound as it is individual differentiation between the index values.

Since December the pound has slipped significantly against the U.S. dollar, rendering returns on the FTSE 100 index achieved by U.S. investors even lower than those acquired by their British counterparts – a difference of around 6% lower.

Despite moderate fluctuations in dollar value, it has continued its march upward against the British currency, with the GBP/USD ratio standing at 1.2161  at 14:58 EST. Many analysts are predicting further depreciation in the value of the pound as inevitable, as concerns begin to enhance in the lead-up to Britain’s triggering of Article 50, as promised at the end of March.

 

Chart from: www.ig.com 

Showing weekly fluctuations in the value of the FTSE 100 index. The significant gully pictured in the centre of the image represents the events described in the article.

 

 

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