Markets cheer Dutch election result and US rate hike

LONDON’S top-flight index rose to record heights as European markets cheered a US rate hike and a snub for populists in the Dutch elections.

The FTSE 100 Index raced to a mid-session record of 7444.62, before paring gains to lift 47.31 points to an all-time closing high of 7415.95.

The rally was largely driven by the US Federal Reserve’s decision on Wednesday to raise American interest rates by a quarter of a percentage point to a range of 0.75% to 1%.

It was the second rate rise in three months, with the US central bank forecasting two further increases this year as the American economy continues to surge following the US election.

Despite the boost, the London market gave up some of its mid-session gains after the pound jumped in response to the Bank of England’s decision to keep interest rates on hold at 0.25%.

Sterling was 0.6% ahead versus the US dollar at 1.236 after minutes of the Monetary Policy Committee (MPC) meeting showed that while eight members backed the no-change decision, outgoing rate-setter Kristin Forbes voted for a rise to 0.5%. The MPC’s decision helped drive the pound 0.6% higher against the euro at 1.151.

Connor Campbell, financial analyst at Spreadex, said rising inflation may push the MPC towards a more hawkish position.

“The pound certainly thought so, at least, rising half a percent against the dollar to a two-week high having been in the red by the same amount earlier in the day after the Queen gave her Royal Assent for the triggering of Article 50. The currency also likely benefited from Theresa May’s repeated statement that ‘now is not the time’ for a second referendum on Scottish independence, the Prime Minister keen to put another roadblock in the way of Nicola Sturgeon’s planned vote.” In Europe, Germany’s Dax rose by 0.6% and France’s Cac 40 was 0.5% ahead.