Pound gives up 2018 gains on dollar as UK rate rise put on hold
ALL of the pound’s 2018 gains against the dollar have been wiped out as markets wind down expectations of a rate rise at the Bank of England next week but brace for more in the US.
With UK growth brought close to a standstill in the first quarter, hike hopes have dwindled with the pound shedding 5.6pc of its value against the strengthening dollar in less than three weeks. Sterling touched below $1.35 yesterday, finishing London trading 0.5pc down against the greenback.
Expectations of firmer inflation in the US have lifted hopes of a quicker pace to the Federal Reserve’s hiking cycle, helping the dollar shake off a mixed jobs report and trade-war jitters to hit its highest level in 2018 against a basket of currencies.
Although wage growth cooled slightly to 2.6pc in April, unemployment declined further to 3.9pc, its lowest level since 2000, indicating that pay packets could be pushed higher by the US’S tight labour market in the coming months.
The currency’s rally lifted Europe’s dollar earners with the FTSE 100 closing 64.45 points higher at 7,567.14 on a broad-based rally. Stronger relative international earnings boosted consumer goods giants Diageo and
Reckitt Benckiser 56.5p to £26.63 and 167p to £57.27 respectively, while
Glaxosmithkline jumped 16.6p to £14.69.
The dollar surge sent ripples across emerging markets. Money is beginning to pour out of emerging markets as investors are lured back to the US by higher rates. Investors have yanked money out of emerging market bond funds for a second consecutive week for the first time since 2016, with a Bank of America Merrill Lynch report calculating that $1.2bn (£890m) has flowed out of emerging market debt funds in that period.
The greenback’s jump will reignite concerns of unaffordable servicing costs on a hefty pile of dollardenominated debt built up in emerging markets in recent years.
As the Argentine peso plunged to record lows against the dollar, its central bank raised interest rates for a third time in eight days to 40pc, a desperate attempt to shock the currency out of its recent slide, market commentators explained. In Turkey, another developing nation soaked in dollar debt, the lira suffered its worst week in 22 months.
Ashmore, a FTSE 100 emerging markets debt specialist, has seen its valuation slip by 5.5pc in the last two weeks. Its shares inched down 2p to 396p.
Elsewhere, revered US investor Gary Klesch boosted shares in the AA after increasing his stake in the troubled roadside rescue firm to 4pc.
Amid speculation that it could be taken back into the hands of private equity, it was revealed that Cleveland Square, Mr Klesch’s investment vehicle, snapped up a 1pc stake this week, helping the AA climb 4.9p to 132.7p. Dixons Carphone
jumped 10.2p to 214.2p after City analysts at RBC Capital Markets predicted in an upgrade to “outperform” that the electronics seller’s new management team will guide a turnaround. Virgin Money capped off a strong week amid swirling takeover talk to rise 6.5p to 312.4p, bringing its weekly rise to 15pc.