New record high for FTSE 100 aided by five-month low for pound

Although the FTSE 100 has exhibited a prolonged period of underperformance compared to its rivals, market analysts assert that all indications point to the index continuing its ascent, unless additional economic disruptions occur.

A long awaited moment has arrived as the FTSE 100 attains a new all-time peak.

Monday’s trading session concluded with the index, comprising the 100 most valuable corporations as listed on the London Stock Exchange, at 8,023 points, reflecting a gain of 128 points or 1.6%.

The closing sum attained its highest level since February of the previous year, when it surpassed the 8,000 mark for the very first time in its recorded history.

Prior to this, the record stood at 8,012.

A robust showing by companies across the board, particularly financial and consumer-linked stocks such as those for retailers, propelled Monday’s performance.

In recent weeks, the index has gained ground on rising expectations that UK interest rates will be lowered in response to weakening inflation and strong indications that the economy has recovered from the recession that ravaged the latter half of last year.

The ascent to a new peak was primarily attributed to two factors, according to analysts: assurance that a significant escalation in the Middle East conflict will be averted, and the pound’s depreciation against the US dollar.

At $1.23, sterling is approximating its lowest level in five months against the US dollar. It fell by half a cent on the day.

New record high for FTSE 100 aided by five-month low for pound

This is the result of the dollar strengthening against the pound weakening, as anticipations are mounting across the Atlantic that the Federal Reserve’s anticipated interest rate cuts will occur later than anticipated.

As is the case here, an increase in interest rates is generally favourable for a currency, including the global reserve currency.

Profitable FTSE 100 constituent companies in the United States benefit from a depreciation of the pound.

This is due to the fact that repurchasing those dollar earnings into pounds and converting them back to pounds improves their bottom line.

Since Brexit and following a series of economic shocks, the FTSE has largely lagged behind its competitors in terms of development. However, it has been regaining ground this year on account of its perceived low valuations in comparison to competing stocks overseas.

The absence of technology firms, which have exhibited superior global performance in the wake of the pandemic, has additionally contributed to the FTSE’s decline.

Trading centres also cite a 0.5% transaction tax on share purchases in UK firms as a competitive disadvantage.

In periods of global economic uncertainty, the index has historically encountered difficulties due to the fact that the majority of its 100 constituents are companies whose success is intrinsically linked to the demand for fundamental commodities, such as industrial and mining equities.

Nevertheless, the initial indications of expansion are encouraging, not only for the FTSE 100 but also for pension funds.

On Monday, the broader and more domestically-oriented FTSE 250 gained 1%, but has yet to reclaim the 20,000-point threshold.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented on the outlook: “Although growth in the United Kingdom has been sluggish and inflationary pressures have begun to ease, there remains optimism regarding the possibility of interest rate cuts later in the summer. This appears to have contributed to the FTSE 100’s ascent.

“Amid expectations of reduced borrowing expenses in the latter part of the year and a marginally improved economic outlook, the value of houses constructed has surged substantially in anticipation of a resurgence in demand for newly constructed dwellings.”

Additionally, Tesco, Ocado, J. Sainsbury, Next, and Marks and Spencer have been reinstated in anticipation of better weather conditions for customers.

“Several FTSE 100 companies, including Rolls Royce and BAE Systems, which surpassed record levels earlier in the month, are poised to return to those heights. Demand in the aftermath of the pandemic and ongoing conflicts have driven upwards aerospace stocks.

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