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The FTSE 100 was on track to finish at an all-time high on Monday, as rising expectations for UK interest rate cuts weakened sterling and boosted corporate valuations.
London’s blue-chip index was trading 1.6 per cent higher in mid afternoon, at 8,031, putting it on course to eclipse its previous closing high of 8,014.31 from February 2023. The index is still short of its intraday high of 8,047.06, also notched last February.
The broad rally, which swept up most of the companies in the index, came as the US currency extended recent gains against the pound. The majority of FTSE 100 companies earn their revenues in dollars and benefit from a weaker exchange rate. Sterling fell 0.5 per cent to trade at $1.212, its weakest level since November.
The pound has weakened 2.5 per cent against the greenback so far this month as a gap emerges in expectations for future borrowing costs in the US and UK. Traders are increasingly betting that the Federal Reserve will keep interest rates higher for longer while the Bank of England will start to bring down rates in the summer.
Swaps markets are pricing in more than two quarter-point interest rate cuts from the BoE by the end of 2024, beginning in August. The US Federal Reserve, however, is expected to deliver fewer than two quarter-point cuts before the end of the year.
“What’s driving equities is the view that interest rates are going to come down,” said Michael Field, an equity markets strategist at Morningstar. “That’s creating this euphoria among investors that we’ve got through it all and the worst is over.”
The FTSE 100 has also been buoyed in recent weeks by rising commodities prices and signs that the British economy may be emerging from the technical recession it slipped into last year.
Oil prices, which climbed higher than $90 a barrel earlier in April for the first time since October, have boosted index heavyweights Shell and BP. Shell alone has contributed almost a third of the FTSE 100’s gains so far this year.
Figures published this month showed that UK gross domestic product grew for a second consecutive month in February, driven by an expansion in manufacturing.
The FTSE 100 has been within touching distance of the record for several weeks, having lagged behind peers on both sides of the Atlantic for much of the past year as global market gains were powered by technology stocks.
