Stocks in London ended lower on Friday, with sterling trading around the USD1.36 mark for the first time since last year's Brexit vote, sinking the FTSE 100 following a hawkish turn from a Bank of England dove.
The dollar-earner heavy FTSE 100 index fell to its lowest level in four months to close down 1.1%, or 79.92 points at 7,215.47. The blue-chip index hit an intraday low of 7,196.58, and ended the week 2.2% lower.
The FTSE 250 ended down 0.8%, or 145.78 points, at 19,378.16, ending the week down 1.2%, and the AIM All-Share closed down 0.6%, or 6.42 points, at 993.82, ending the week 1.7% lower.
The BATS UK 100 ended down 1.1% at 12,270.96, the BATS 250 closed down 0.8% at 17,633.61, and the BATS Small Companies ended flat at 12,124.92.
"The FTSE 100 suffered a severe sell-off due to the rally in the pound. The strength of the sterling is wreaking havoc on the London market. The FTSE 100 dropped to its lowest level since late April, as the pound went from strength to strength," said CMC Markets analyst David Madden.
The blue-chip index's woes were triggered by hawkish commentary from the Bank of England external Monetary Policy Committee member Gertjan Vlieghe.
In a speech given to the Business Economists' Annual conference on Fridaymorning, Vlieghe said interest rates could rise "as early as in the coming months".
This holds particular significance as Vlieghe - a one time dovish member of the MPC - changed his tune as he spoke about the history of short-term real interest rates and equity prices in the UK, before commenting on future BoE monetary policy.
The MPC voted 7-2 on Thursday to hold the key UK interest rate at a record low 0.25%, and all nine members voted to maintain quantitative easing at GBP435 billion.
"Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure. But the evolution of the data is increasingly suggesting that we are approaching the moment when bank rate may need to rise," said Vlieghe.
Sterling soared to its highest level since the Brexit vote in June 2016, touching an intraday high of USD1.3617 against the greenback in wake of Vlieghe's comments.
The pound was quoted at USD1.3590 at the London equities close, compared to USD1.3394 at the close on Thursday.
A manhunt has been launched after a bomb was detonated in a suspected terror attack on a packed London Underground train at Parsons Green station, West London.
The explosion was declared a terrorist incident by Scotland Yard. Police suspect the explosion was sparked when an improvised explosive device was detonated, and have launched a huge counter-terrorism investigation alongside MI5.
UK Prime Minister Theresa May condemned the "cowardly" attack, and said that the UK's terror threat level would remain at severe -
meaning an attack is highly likely - but would be kept under review as the investigation progresses. The Prime Minister was speaking in Downing Street after chairing a meeting of the Cobra emergency committee.
In Paris the CAC 40 ended down 0.2%, as did the DAX 30 in Frankfurt.
The euro was higher trading at USD1.1958 at the European equities close, against USD1.1882 the prior day.
Stocks in New York were flat to higher at the London equities close. The DJIA was up 0.2%, the S&P 500 index was up 0.1% and the Nasdaq Composite was up 0.4%.
US indices were trading around all time highs with the Nasdaq breaching 6,000 once again in the early part of the US session, and the S&P 500 heading towards 2,500.
"With each successive North Korean launch, the impact on markets has diminished. It will take more than a disgruntled dictator with delusions of grandeur to knock this market off its perch, even if that dictator is armed with nuclear weapons. Next week's Fed meeting will be the focal point of the month, and while the Fed is unlikely to be as dramatic as the Bank of England was yesterday, there will nonetheless be plenty of attention on the likely path of rates into year-end," said IG Group analyst Chris Beauchamp.
On the London Stock Exchange, Carnival ended the session as the worst blue-chip performer, closing down 6.2% after being cut to Neutral from Outperform by Credit Suisse. The cruise line operator will report third quarter earnings next Thursday.
"Carnival shares were hit by a broker downgrade from Credit Suisse due to its large exposure to the Caribbean. In the wake of Hurricane Irma, the travel company will find it tougher to sell cruises in the region," CMC's Madden noted.
In addition, shares in Provident Financial closed down 4.0%, among the worst performers in the FTSE 100, ahead of the subprime lender's demotion from the blue-chip index, which takes effect on Monday.
Next closed up 1.0% as the clothing and homewares retailer extended gains after raising its full-year sales and profits forecasts on Thursday, when the stock closed up 13%.
In the FTSE 250 JD Wetherspoon ended the session as the best performer, closing up 14%. The pub chain reported growth in profit in its recently-ended financial year, an improved margin, and better-than-expected like-for-like sales.
Wetherspoon said its pretax profit in the year ended July 30 increased to GBP76.4 million from GBP66.0 million the year before, as revenue rose to GBP1.66 billion from GBP1.60 billion, which Liberum said was at the top end of expectations.
Operating margin before exceptional items increased to 7.7% from 6.9%, better than the company's guidance of between 7.0% and 7.5% which it provided at the time of its first-half results in March.
This was good news for Wetherspoon, as its margin had been consistently declining over the last few years. Although margin in the recent year hasn't returned to its former strength, where it hit a high of around 19% in financial 1997, it is better than the 7.4% reported two years ago in financial 2015.
JD Sports Fashion ended up 3.0% after the sportwear retailer said it has entered into a joint venture agreement with South Korean footwear retailer Shoemarker, in relation to Shoemarker's J&S Partners, which trades as Hot-T.
Under the agreement, the sports clothing retailer has acquired an initial 15% stake in Hot-T for GBP5.5 million in cash, and also has a call option to acquire a further 35%.
Brent oil was quoted at USD55.59 a barrel at the equities close on Friday from USD55.84 at the same time the prior day.
Gold was quoted at USD1,322.40 an ounce against USD1,325.50 at the London equities close Thursday.
The economic calendar for Monday has UK Rightmove House Price Index data at 0001 BST, eurozone inflation figures at 1000 BST, while markets in Japan are closed for the Respect-for-the-Aged Day Bank Holiday.
Highlighted in the UK corporate calendar Monday is a trading statement from diary products company Dairy Crest Group and full year results from Finsbury Food Group and City of London Investment Group.
In addition, the FTSE Russell index review changes come into effect, with postal operator Royal Mail joining Provident Financial in exiting the FTSE 100, and UAE-based private healthcare provider NMC Health and housebuilder Berkeley Groupwill be added to the blue-chip index.
To be added to the FTSE 250 are online gaming entertainment provider 888 Holdings, Alfa Financial Software, and Sequoia Economic Infrastructure Income Fund.
Leaving the mid-cap index are construction and support services firm Carillion, miner Petra Diamonds, and commercial vehicle rental company Northgate.