Why is the FTSE 100 pushing record highs as the GBP drops?


anyoption analyst Joshua Rodriguez takes a look at the different directions UK equities and the UK’s currency are going, especially in light of last week’s British Pound flash crash. For more of Joshua’s research see the anyoption blog.

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Joshua Rodriguez
Joshua Rodriguez

The FTSE 100 (INDEXFTSE:UKX) had an incredible week last week, and for good reasons. Concerns with regard to a “Hard Brexit” led to a massive decline in the value of the GBP. A move that’s now being called the “flash crash”. While this may seem like bad news for the FTSE 100, it actually sent the index soaring near record highs. Today, we’ll talk about the flash crash, why it helped to push the FTSE 100 upward, and what binary options traders should be watching ahead.

The Flash Crash That Started It All

Mid last week, the UK saw some big movement in financial markets. On Sunday, Theresa May said that the Brexit would indeed be taking place, and that she expected to act on the move by no later than March of next year. In response, we heard comments by the president of France and the chancellor of Germany; neither of which were happy about the news.

The statements started mid week with Francois Hollande, the president of France. In his statements, he made it clear that he believes that the UK made the wrong decision, and that it’s important that Europe makes them pay for that decision. In fact, the entire statement can be summed up with a 15 word snippet from the announcement…

There must be a threat, there must be a risk, there must be a price…

These comments weighed heavy on the GBP as currency traders feared the worst for the UK economy. Shortly after Hollande made his statements, Angela Merkel weighed in with what seemed to be the same view.

How Did This Help The FTSE 100?

At first glance, many would believe that this kind of economic threat would be a bad thing for the FTSE 100. However, that’s not necessarily the case. In fact, following the news, the index gained all week, nearing record highs. So, what cause the gains?

While the news was bad for the British economy, it was actually great for the FTSE 100 because of currency exchange rates. At the end of the day, the FTSE is an incredibly commodity heavy index. Some of the largest companies listed are mining companies. Because of the fact that commodities are largely priced in the USD, the fact that the GBP fell dramatically essentially lifted the value of mining companies that do business using the USD dramatically. These companies held up the index, actually pushing it higher and higher with each passing day.

ftse-100-one-year-chart

FTSE 100 one-year chart. Source: Google Finance.

What Binary Options Traders Should Be Watching Ahead

anyoption logoMoving forward, I’m expecting to see several incredible opportunities for binary options traders surrounding the FTSE 100. The gains, or declines to come are largely going to center news with regard to the Brexit. At the end of the day, what happens in the Brexit story between now and March will largely dictate how well, or poorly the UK economy is likely to perform in the mid term. So, any news that suggests an end result is likely going to lead to massive movement in the market. So, when trading the index, make sure to watch the Brexit news closely.

What Do You Think?

Where do you think the FTSE 100 is headed and why? Join the discussion in the comments below!

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Why is the FTSE 100 pushing record highs as the GBP drops?

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