Pound firms, stocks retreat before UK confidence vote
london — The British pound firmed against the dollar and euro on Wednesday, and London stocks dropped, as traders awaited a confidence vote on British Prime Minister Theresa May’s government after parliament voted massively against its Brexit deal.
The pound’s rise “would appear to reflect some expectation that... the prospect of no-deal may have been diminished”, said Bank of England governor Mark Carney.
“Now I am not giving my opinion — I am giving the market’s initial take,” he told a regular meeting with MPs.
“The markets, as the country, are looking to parliament for direction, and one would expect continued volatility,” Carney added.
The rising pound tends to weigh on London’s benchmark FTSE 100 index since it features many multinationals who earn vast sums in dollars and euros.
London’s second tier FTSE 250 was up slightly. Featuring mostly companies operating in the UK, the 250 index is along with the pound seen as a clearer indicator of Britain’s future economic health.
“Many people may be surprised that the pound is holding firm and the UK-heavy FTSE 250 index is rising off the back of Theresa May’s Brexit vote defeat,” noted Russ Mould, investment director at stockbroker AJ Bell.
“In essence the market believes we are going to get more time for negotiations, we’re less likely to have a hard, economically-damaging Brexit, or Brexit won’t happen at all.
“It seems inevitable that both the pound and the stock market will be volatile for weeks or months to come until we have a definitive answer as to the exact direction of travel for Brexit,” Mould added.
The pound up at $1.2871 from $1.2861 at 2140GMT. Euro was at 88.67 pence from 88.75 pence.
The FTSE 100 index was down 0.6 per cent at 6,854.42 points, Germany’s DAX 30 was flat at 10,889.42 and France’s CAC 40 gained 0.2 per cent at 4,796.04.
In Asia, Tokyo’s Nikkei 225 slipped 0.6 per cent at 20,442.75. Hong Kong’s Hang Seng gained 0.3 per cent at 26,902.10 and Shanghai Composite was flat at 2,570.42.