The UK’s leading index has a huge number of companies that take their income in dollars, and the weakness of the pound means that those companies are seeing greater earnings, and that they are also more attractive for exports.
Normally, a string of gains such as those that we have seen the last couple of weeks would bring about fears that the FTSE 100 is due an aggressive period of correction. The current health of the pound, however, is something that is giving the blue chip index far more room to grow. Many analysts predict that by the end of the year, the FTSE 100 could climb as high as 7,600 thanks to the combination of recovering commodity prices, robust growth in the global economy, and a weak sterling.
The Brexit negotiations are likely to cause episodes of volatility, and when Article 50 is triggered that could bring about a temporary recession, but in the longer term the index should recover. Theresa May’s “hard brexit” comment could help the FTSE 100 to push higher, even if the pound does not see significant devaluations soon.
JP Morgan Asset Management believes that the dividend yield of the FTSE 100 could be enough to draw investors back, and the sterling boost is likely to continue as well, so there is plenty of reason for optimism.