FTSE struggles as pound rebounds

Trade optimism as US -Sino trade talks continue and hopes that a second US government shutdown will be avoided, have boosted sentiment across the globe on Tuesday. Yet despite an initial move higher and a positive start on Wall Street, the FTSE was unable to cling onto its morning gains. A rebounding pound, after Theresa May pleaded for more time for her Brexit negotiations, along with TUI dragged the UK index lower.

Pound jumps as PM May pleads for more time
The pound bounced off a three-week low after Theresa May said she needed more time to renegotiate with Brussels over her Irish backstop arrangement. Whilst Theresa May still claimed that the government was aiming at leaving the EU on 29th March, she dodged questions on extending Article 50. The pound picked itself up from $1.2833 and is heading back towards $1.29.

At these levels it is still safe to say that the markets are not pricing in a no deal Brexit. Pound traders are seeing an extension of Article 50 as the most likely scenario. This would see a continuation of uncertainty keeping pressure on the pound, but not pulling it as low as a no deal scenario would. Should traders start to believe that Theresa May’s deal is going to make it through Parliament as she runs the clock down, then we could expect the pound jump sharply through $1.30 back towards $1.34. However, with another meaningful vote now expected on 27th February, there is still some time to go.

A stronger pound is less beneficial for the multinational companies on the FTSE. These make up around 70% of the index. As a result, the FTSE could barely keep its head above water, whilst the Dax soared 1% and the Dow surged 0.8% as it opened.

Dollar runs out of steam
The dollar experienced a bout of profit taking after 8 straight days of gains. With no notable data to support the next leg higher, dollar traders booked their profits whilst waiting for the next catalyst. Fed Chair Powell is due to speak this evening at 17:45 GMT. If he sticks to his recent song sheet, then he is unlikely to do any favours for the dollar. US inflation data tomorrow could also keep dollar bears out of the game. CPI is expected to fall to 1.5% from 1.9% in January. Falling inflation will keep the Fed firmly in a wait and see mood.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.