U.K. blue-chip stocks lost ground Monday, getting squeezed by a rally in the pound that came after Brussels and London agreed on the terms of a Brexit transition deal.
Analysts were also pinning the retreat in part on expectations that the Bank of England and the U.S. Federal Reserve will signal this week how their respective monetary policies may be tightening.
Micro Focus International PLC’s stock was the FTSE 100’s biggest loser as the software maker warned on its outlook and said its CEO has resigned.
How markets are moving
The FTSE 100 index /zigman2/quotes/210598409/delayed UK:UKX +1.15% slumped 1.7% to close at 7,042.93, suffering its biggest one-day percentage loss since early February.
The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD +0.0355% jumped to $1.4037, up from $1.3944 late Friday in New York.
What’s driving markets
Sterling’s rally came after news the EU and U.K. had agreed on the broad terms of a transition deal. Under the terms of the agreement, the U.K. will remain in the EU’s single market and customs union until the end of 2020, providing businesses with at least an extra 21 months to prepare for life outside the union. The transition period will also allow more time for negotiators to hammer out a post-Brexit trade agreement.
A stronger pound sometimes weighs on the FTSE 100 as about 75% of the benchmark’s revenue is made overseas, and that revenue therefore shrinks when translated back into sterling.
Traders also dumped stocks ahead of two important central bank meetings later in the week. A BOE monetary policy decision is expected on Thursday after a U.S. Fed decision on Wednesday. The U.S. central bank is expected to raise interest rates for the first time this year, while analysts say the BOE could hint at a rate rise in May.
Concerns over trade wars further lingered in the back of investors’ minds. The Trump administration has taken a hawkish stance on U.S. trade with China and is moving ahead with tariffs on foreign steel and aluminum.