GBP set for bumper weekly gains; FTSE at 4-month lows

It’s been quite an incredible week for the pound, with the currency soaring across the board as a hawkish shift in the Bank of England has seen a rapid repricing of future rate hike expectations, meaning that an increase at the next meeting in November is now odds-on according to the markets. With sterling soaring, it has been a bad week for several major blue-chips who are sensitive to currency moves, with the FTSE 100 falling this morning to its lowest level since the start of May.

BoE doves are turning hawkish

The pound received a further boost this morning with some hawkish comments from Gertan Vlieghe, who is regarded as one of the most dovish members on the MPC. Speaking in London, Vlieghe stated that the appropriate time for a rise in the bank rate might be as early as in the coming months which lends further support to the growing calls for a first interest rate hike in a decade before the year is out. November seems the more likely of the two remaining meetings to see a move, with the release of the quarterly inflation report and scheduled press conference with Governor Carney deemed favourable as it will offer the bank greater opportunity to explain their rationale behind a hike.

Pound rally could have room to run

Predictably these events have provided a major boost to the pound, with sterling on course for its largest weekly gain since 2009. A rise in trade-weighted terms in excess of 3% since Monday reflects the positivity surrounding sterling in the markets and there have in fact only been 4 occasions in the past 4 decades where there has been a larger weekly appreciation. Against the US dollar the pound has now risen to levels not seen since the pound crashed on the day following the Brexit vote last June, and whilst there is still some way to go before the entire losses are recouped, the exchange rate now sits closer to pre-vote levels than the post-vote low.

FTSE falls victim to rising pound

The leading stock benchmark in London has endured a testing week, with the FTSE 100 set to post a significant loss and shedding a further 75 points this morning. The breadth of the selling also doesn’t bode well for the bulls with less than a dozen stocks on the index currently escaping a loss on the day. It is ironic that tomorrow is St. Leger’s day, the horse race which according to the sell-in-May trading adage is when market participants should look to return from their summer hiatus. However, given the damage done this week due to the rise in the pound, even the most bullish of investors will hold a sense of trepidation in looking to buy the benchmark imminently.