Pound drops amid Brexit headlines; Bank of England holds rates steady
London markets gained as investors digested a positive U.K. retail sales surprise and a third vote on the Brexit transition agreement began to look more likely, news that roiled the pound.
How did markets perform?
The FTSE 100 UKX, +0.64% UKX, +0.64% rose 0.3% to 7,311 as U.K. retail sales surpassed expectations, erasing Wednesday’s decline of 0.45%.
The U.S. Federal Reserve’s dovish announcement Wednesday also had an impact, lifting mining stocks and affecting currencies. The trade-weighted U.S. dollar index DXY, +0.47% fell sharply on the announcement, which spilled over into European currencies. The pound GBPUSD, -0.6973% was volatile as Brexit and Fed news fought it out; on Thursday it fell again and was down 0.5%, leaving it trading near Wednesday’s lows at $1.3128.
What’s moving the markets?
In economic data, U.K. retail sales rose 0.4% in February, defying expectations of a drop, suggesting consumers are not pulling back quite as hard amid Brexit as many had feared.
The Bank of England left interest rates unchanged at its Monetary Policy Committee meeting, citing Brexit uncertainty.
Thursday’s European Council meeting is shaping up to be a crucial moment in the Brexit saga, after U.K. Prime Minister Theresa May addressed the nation Wednesday evening saying she would seek a short extension to the March 29 deadline and laying the blame at the feet of British MPs. European Union leaders signalled they would likely agree to such an extension if May can get her twice-defeated deal approved in Parliament.
Ian Williams, economics and strategy research analyst at Peel Hunt, attributed the pound’s rebound Wednesday to optimism about the next Brexit developments: “By London’s close, the pound had trimmed some of its intraday losses on hopes that the meaningful vote could be passed at the third attempt.”
What stocks are active?
Miners rebounded Thursday after sinking Wednesday following indications that Vale would restart production at a large iron ore mine in Brazil, which the Financial Times reported could impact iron ore prices. Antofagasta PLCANTO, +2.15% (up 0.8%) Rio Tinto PLC RIO, +0.60% (increased 1.5%) BHP Group BHP, +0.47% (rising 1.3%) and Glencore PLC GLEN, +1.36% (1pers.2%) all climbed in early trading.
Falling housing prices weighed on U.K. home builders such as Persimmon PLCPSN, -0.81% which was down 3%, and Taylor Wimpey PLC TW., +0.20% which sank 2.5%. Prices nationwide declined 0.8% month over month in January, while London house prices dropped 1.6% year over year.