FTSE 100 shouldn't fear the strong pound
STOXX 600 down 0.7%
Auto lag on VW, Stellantis profit warnings
Miners remain bright spot
Wall St futures steady
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FTSE 100 SHOULDN'T FEAR THE STRONG POUND
Britain's pound has been on a roll in recent months, but that won't necessarily spell trouble for Britain's blue-chip index, according to Goldman Sachs, even though Britain's mid-caps should outperform.
The pound GBP=D3 was last at $1.3415, trading near its strongest level against the dollar since February 2022, and Goldman Sachs FX strategists think it might have further to go, recently raising their forecast to $1.40.
"Strong Pound favours UK Domestic," GS writes in a note.
"Based on the recent years' correlation, $1.40 for GBP implies that UK domestic would outperform the FTSE 100 by roughly 20%."
Companies in the FTSE 100 .FTSE only generate around a quarter of their revenues from the UK, GS notes, compared to around 50% for the FTSE 250 .FTMC. The FTSE 100 also pays circa 50% of its dividends in dollars.
But the strong currency won't necessarily mean a decline for the FTSE 100.
"The sensitivity of the FTSE 100 to moves in GBP is not like TOPIX's sensitivity to the yen," GS says, "the FTSE 100 tends to rise, even when the pound is rising, as the pound is a risk-on currency."
(Samuel Indyk)
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