Britain’s top share index FTSE 100 dropped on Wednesday, as the pound strengthens from an optimistic UK jobs market data.
FTSE 100 declined by 0.5 percent to £7,687.75, hitting a sixth-day low. The index has edged lower than Thursday’s lowest close of £7,700.96.
FTSE 100 was mostly weighed down by the rising sterling, which has gained 1.3 percent to 1.4188 against the US dollar. Its highest level since the Brexit vote in June 2016. However, it was still far from hitting the 1.50 level ahead of the vote.
The currency’s sluggish recuperation at that time has bolstered UK blue chips with revenue in dollars. About 75 percent of FTSE 100’s revenue is generated overseas. As a result, a weak pound usually lifts the index, while it is sensitive to the pound’s upsurge.
The sterling’s rally partly resulted from investors’ growing confidence over London and Brussels coming to an agreement on the Brexit transition deal in the coming months. The renewed sell-off in the dollar moderately boosts the currency as well.
The pound was able to beat most of the ten heavily traded currencies after getting support from an upbeat labor market data, helping it extend gains against a weaker dollar.
Senior economist Kallum Pickering said that it is becoming more and more difficult for the Bank of England (BoE) to justify its highly-accommodative policy stance.
Kallum expects, seeing the latest employment figures, two rate hikes this year that might further boost the pound.
The bank made it first rate hike in a decade in November to ease inflationary pressure.
UK Employment Rises, Wages Still Low
UK’s statistics authority the Office for National Statistics (ONS) stated that employment in the country rose to a near one-year record high in November.
Overall employment rate added 75.3 percent or 102,000 in the quarter to November to 32.2 million. UK’s highest recorded rate since comparable records started in the 1970s.
The figures came after two successive jobs reports presented lower number of employed people. Unemployment was unchanged at 4.3 percent.
Britain’s economic activity slowed in the previous year due to higher inflation. This has affected the spending power of consumers that has led to the decline in UK’s retail sales.
However, ONS reported a slight increase in wages in the three months to December. Average total wages grew 2.3 percent year-on-year in the month, which was still below the inflation rate. This means that pay was still falling in the country.
Three-month pay growth rate remained unchanged at 2.5 percent.