Sterling leaps after BOE signals a rate hike is coming
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U.K. stocks slumped to close at their lowest level in 4 1/2 months on Friday, pressured by a rally in the pound after an ultradovish Bank of England member hinted interest rates could rise in coming months.
The FTSE 100 index slid 1.1% to end at 7,215.47, marking its lowest finish since April 28, according to FactSet data.
The market seemed to shake off a suspected terror incident in London (http://www.marketwatch.com/story/terror-explosion-on-london-underground-train-injures-passengers-2017-09-15), which left at least 22 injured after an explosion on board an underground train.
The pound was the big driver for equity losses, as the British currency soared to its highest dollar value since the U.K.'s Brexit vote (http://www.marketwatch.com/story/ballistic-pound-shoots-up-to-highest-level-since-brexit-vote-2017-09-15) in June last year, powered by expectations the BOE will raise interest rates by the end of the year. Sterling recently bought $1.3589, up from $1.3398 late Thursday in New York. It had climbed as high as $1.3617 earlier.
A stronger U.K. currency tends to slam the FTSE 100 lower, as it weighs on the earnings of the index's many multinational companies that make a bulk of their money overseas.
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Gertjan Vlieghe, traditionally one of the most dovish members on the Monetary Policy Committee, said in a speech that rates may need to go up in "coming months."
"Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure. But the evolution of the data is increasingly suggesting that we are approaching the moment when bank rate may need to rise," he said in a speech (http://www.marketwatch.com/story/boe-dove-vlieghe-now-sees-need-for-rate-hike-2017-09-15).
His comments follow a hawkish message from the BOE's meeting on Thursday, where the central bank signaled it was preparing to hike interest rates (http://www.marketwatch.com/story/boe-says-it-may-hike-interest-rates-within-months-2017-09-14) over the coming months to rein in rising inflation.
"With the markets now pricing in a very high possibility of a rate hike before year-end, sterling is likely to regain its attitude and remain supported moving forward," said Lukman Otunuga, research analyst at FXTM, in a note.
"Sterling/dollar is undeniably bullish on the daily charts, and this upside momentum is likely to roll over into the new trading week," he added. Otunuga said he sees bulls targeting the $1.37 level.
Interest rates on U.K. government bond also rose, with the yield on 10-year paper climbing 7 basis points to around 1.293%, according to trading platform Tradeweb.
Traders on Friday also tracked the latest provocation from North Korea. The isolated nation early Friday local time fired a missile over northern Japan (http://www.marketwatch.com/story/un-security-council-to-hold-emergency-meeting-after-latest-north-korean-missile-test-2017-09-14) for the second time in a month, a day after saying it wanted to sink the American ally with a nuclear bomb.
The FTSE 100 lost 2.2% for the week.
Stock movers: Miners were among the biggest decliners, building on losses from Thursday that came after some disappointing Chinese data (http://www.marketwatch.com/story/chinas-industrial-output-grows-less-than-expected-2017-09-14).
Shares of Rio Tinto PLC (RIO) (RIO) (RIO) lost 1.4%, while Anglo American PLC (AAL.LN) and Glencore PLC (GLEN.LN) both fell 2%.
Shares in Carnival PLC (CCL.LN) closed 6.2% lower for the FTSE 100's biggest loss. Credit Suisse downgraded the cruise operator's stock to neutral from outperform, saying geopolitics and hurricane fallout could weigh on demand.
Off the blue-chip index, shares of J.D. Wetherspoon PLC (JDW.LN) rose 14% after the U.K. pub operator reported a rise in profit (http://www.marketwatch.com/story/wetherspoon-profit-rises-maintains-dividend-2017-09-15) and maintained its full-year dividend.
(END) Dow Jones Newswires
September 15, 2017 12:08 ET (16:08 GMT)