LONDON MARKETS: FTSE 100 Slides To 3-week Low As Pound Breaks Above $1.40

By Sara Sjolin, MarketWatchFeaturesDow Jones Newswires

U.K. unemployment data on deck at 9:30 a.m. London

U.K. stocks headed lower on Wednesday, with big multinationals leading the charge south as a rally in the pound spooked investors out of companies that generate most of their revenue abroad.

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What are markets doing?

The FTSE 100 index dropped 0.5% to 7,692.23, setting the benchmark on track for its lowest close since Jan. 3.

Meanwhile, the pound jumped to $1.4148 from $1.4000 late Tuesday in New York. Sterling, which has climbed as high as $1.4152 on Wednesday, is now trading at its highest level since the U.K.'s Brexit referendum in June 2016, but is still a ways off from the $1.50 handle reached ahead of the vote.

What is driving the markets?

U.K. stocks were weighed by the appreciating pound, as a stronger sterling hits earnings for large international companies that generate the bulk of their revenue outside Britain. About 75% of revenue for the FTSE 100 is generated overseas, so the London benchmark is particularly sensitive to pound swings.

The pound rally came partly as investors grew more confident London and Brussels will agree on a Brexit transition deal in coming months, and partly because of a renewed selloff in the dollar. The ICE U.S. Dollar Index fell to a three-year low on Wednesday (http://www.marketwatch.com/story/dollar-plunges-to-3-year-low-after-mnuchin-cheers-weaker-greenback-2018-01-24)after U.S. Treasury Secretary Steven Mnuchin said a weaker greenback is good for trade while speaking at the World Economic Forum in Davos, Switzerland.

Analysts have also pointed out that the expected Federal Reserve rate hikes for 2018 largely are priced into the dollar, and that traders now are positioning themselves for other central banks to start tightening.

The rally for the U.K. currency accelerated after British labor market data showed the unemployment rate in November stayed at the lowest level since 1975 at 4.3%. The number of people in work jumped a surprising 102,000, while wages rose 2.5% as expected.

What are strategists saying?

"Although below inflation at the present there are signs that tentatively rising wage growth will converge with falling inflation in the coming months. Sterling's recovery will only aid that process and is a reason to be more bullish on the U.K. economy and sterling. Generally speaking we are also seeing less chance of the cliff-edge exit with the tone of Brexit negotiations more constructive since December following the U.K.'s agreement to financial terms," said Neil Wilson, senior market analyst, in a note.

Which stocks are in focus?

Shares of Antofagasta PLC (ANTO.LN) dropped 1.3% after the miner copper production in the fourth quarter of 2017 fell 1.3% (http://www.marketwatch.com/story/antofagasta-says-copper-production-fell-13-2018-01-24) quarter on quarter, while gold production fell 32%.

Sage Group PLC (SGE.LN) slumped 8.4% after a strong rise in sales still missed analyst forecasts (http://www.marketwatch.com/story/sage-group-backs-guidance-after-revenue-rises-63-2018-01-24).

Outside the FTSE 100, Fevertree Drinks PLC (FEVR.LN) climbed 2.4% after the producer of mixers posted a 66% jump in 2017 revenue.

(END) Dow Jones Newswires

January 24, 2018 08:41 ET (13:41 GMT)