Surging pound stymies FTSE gains

A stronger pound has knocked the shine off the FTSE 100, with the index 30 points lower in mid-morning trading.

-  Hints of EU flexibility buoy sterling

-  FTSE record close & Dax strength put bulls in charge

-  US CPI key for dollar direction

Yesterday’s record close for the FTSE 100 has not been followed by fresh bullish momentum, as a rally in sterling to its highest level since the beginning of the month hampers gains in the index. It appears, perhaps, that the sands are shifting in the EU’s hitherto resolute position. Reports in German newspapers about a transitional deal, plus the EU’s own internal discussions about trade talks with the UK, plus Barnier’s hints about making progress in talks in coming months, have all combined to provide what is a relatively optimistic appraisal of the situation. Nonetheless, the FTSE’s new closing high, plus another test of 13,000 for the Dax yesterday, are not symptoms of a bearish market. The bulls have the edge, and a strong US and European earnings should stand them into good stead for the rest of the year.

Today’s US CPI and retail sales figures will be the key event of the day, as investors wait to see whether the data aligns with the more dovish views of some FOMC members. And after JPMorgan and Citigroup beat estimates yesterday, we will wait to see if Bank of America can repeat the trick. Ahead of the open, we expect the Dow to start at 22,857, up sixteen points from yesterday’s close.

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