The dollar started rising again on Thursday, after a few days of weakness, putting renewed pressure on a struggling pound, while stock markets across Europe struggled.
By the end of the day, a pound could buy a little over 1.11 dollars, down by 1.7% on the day. It marked a rough day for sterling, but also for the euro, which fell 0.6% against the US currency.
“Sterling has been under pressure over the course of the day, with dollar strength helping to weaken GBPUSD (the pound against sterling) after a week of upside,” said Joshua Mahony, senior market analyst at online trading platform IG.
“With sterling having recovered from the volatility driven by Kwarteng’s mini-budget, the focus returns to the question of when the dollar dominance will resume.
“Recent calls for the Fed to slow their tightening process in response to a burgeoning dollar-led crisis in Europe appear wide of the mark, with (Minneapolis Federal Reserve Bank President Neel) Kashkari stating that tightening will continue until inflation starts to reverse.”
But the fall in sterling did not seem to do much to help the FTSE 100 on Thursday. The index normally moves up when sterling moves down as many of its companies earn a lot of money in dollars.
By the end of the day, the index had dropped by 0.8% – losing 55 points, and ending the day on 6,997.
But the FTSE was not alone. Shares fell in Europe and on Wall Street too.
The S&P 500 was down 0.2% and the Dow Jones down 0.3% shortly after European markets closed. Germany’s Dax closed down 0.3%.
Investors are becoming concerned about energy prices again after the Opec+ group of oil-producing countries agreed to major production cuts at a meeting on Wednesday.
The cost of Brent crude oil was fairly stable on Thursday, trading up around 0.5% to 93.92 dollars per barrel.
“Joe Biden has stated his disappointment over the surprise two million barrels per day production cut from Opec+, with many seeing this as a Saudi decision to favour Russian interests over the West,” Mr Mahony said.
He added: “With the Western world having to take drastic measures that will squeeze economic growth in a bid to drive down inflation, the timing of this production cut highlights a disregard for the interests of the US and Europe.
“Unfortunately, we are starting to see natural gas and crude oil gain ground, with fears around rising commodity prices likely to return as demand rises into the winter period.“
In company news, tobacco giant Imperial Brands said that it had seen increased sales across southern Europe and in duty-free zones thanks to a rebound in tourism around the world after the pandemic.
The business said that it would buy back shares worth £1 billion from its investors to return cash to them.
Shares rose by 3.5%.
The biggest risers on the FTSE 100 were Segro, up 19p to 743.2p, Imperial Brands, up 47p to 1,944p, Haleon, up 5.7p to 284.15p, Informa, up 10.4p to 542.4p, and Ashtead, up 77p to 4,400p.
The biggest fallers on the FTSE 100 were Kingfisher, down 11.1p to 214.4p, Centrica, down 3.18p to 68.44p, Rolls-Royce, down 3p to 71.29p, DS Smith, down 9p to 249.4p, and St James’s Place, down 33p to 995.6p.