By Barbara Kollmeyer
The pound climbed above the $1.30 mark on Wednesday, as investors seized on hopes for renewed Brexit talks and, potentially, a trade deal between the U.K. and the European Union.
Initially, the pound surged on comments by the EU’s chief negotiator Michel Barnier, reading them as an indication that a Brexit deal was in reach.
“Our principles respect U.K. sovereignty. An agreement is possible if we are both ready to work constructively and in a spirit of compromise over the next days, on the basis of legal texts. Time is short,” said Barnier, in a speech to the European Parliament earlier on Wednesday.
The pound /zigman2/quotes/210561263/realtime/sampled GBPUSD -0.0356% jumped 1.5% against the dollar to $1.3143, a level not seen since August. That move accompanied general dollar weakness, with the ICE Dollar Index /zigman2/quotes/210598269/delayed DXY +0.04% down 0.4% to 92.688.
“The U.S. dollar has been on the back foot for the past couple of days, mainly on the rally in EURUSD, which I believe is more about real flows than macro,” said Stephen Innes, chief global markets strategist at Axi, in a note to clients. The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.0414% has gained over 1% against the dollar this week.
Innes had a slightly less optimistic read on Barnier’s comments, saying “there is undoubtedly a risk the sterling spike will reverse to some extent. The EU seems to be putting pressure on the U..K to make some joyful noise and properly restart negotiations.”
A strong pound weighed on the FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -0.59% , which fell 1.5% to 5,798.74. A strong currency weighs on shares of international companies that earn revenue overseas. Shares of two major multinationals, drinks maker Diageo /zigman2/quotes/205611832/delayed UK:DGE +0.15% and those of British American Tobacco /zigman2/quotes/209116881/delayed UK:BATS +0.07% , fell over 2% each.
Energy companies were also lower as oil prices came under pressure against the backdrop of a risk-averse day, with European equities down and U.S. stocks largely struggling for traction while investors watched U.S. stimulus-deal progress.
Shares of Royal Dutch Shell /zigman2/quotes/206428183/delayed UK:RDSA -1.31% /zigman2/quotes/205095589/composite RDS.A -0.47% fell close to 2% and BP /zigman2/quotes/207305210/composite BP -1.15% /zigman2/quotes/202286639/delayed UK:BP -2.19% dropped 1.5%.
Drugmakers were also lower, with shares of AstraZeneca /zigman2/quotes/200304487/composite AZN +1.01% /zigman2/quotes/203048482/delayed UK:AZN +0.85% and GlaxoSmithKline /zigman2/quotes/209463850/composite GSK +0.83% /zigman2/quotes/200381158/delayed UK:GSK +0.42% down 1% each.
Shares of Fresnillo /zigman2/quotes/201300065/delayed UK:FRES -3.10% fell 3% after the Anglo-Mexican miner cut its gold production guidance , citing coronavirus-related restrictions in Mexico that limit the number of mining workers.
On the FTSE 250 index, shares of Centamin /zigman2/quotes/210323628/delayed UK:CEY -2.15% plunged 20%, after the London and Toronto-listed miner reported lower gold production and sales for the third quarter.
“Production difficulties at the Sukari mine in Egypt — and management’s completely appropriate decision to put staff and investment in their safety first — mean that production will undershoot and production costs exceed expectations in 2020 and now 2021 as well,” said Russ Mould, AJ Bell investment director, in a note to clients.
“With gold still trading above $1,900 an ounce, Centamin still has every chance to make healthy profit margins, especially as the FTSE 250 firm’s balance sheet is net cash so there are no net interest bills to pay, but the outcome could have been so much better,” said Mould.