Brexit Britain roars into 2022 with pound up on dollar and euro as FTSE soars

Victoria Scholar gives advice on interests rates and FTSE

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The pound has been making considerable gains in recent weeks, trading close to a six-week high against the dollar and a near two-year high against the euro. Against the euro, the pound rose from 1.16 earlier in December to 1.20 this morning. In just over two weeks it has gone from 1.32 against the dollar to 1.35. Michael Brown, Head of Market Intelligence at Caxton, put the gains against the euro partly down to the differences in monetary policy between the Bank of England and European Central Bank (ECB).

He explained markets were now “pricing 30 (basis points) of BofE hikes by March, while the ECB stand pat”.

While the Bank of England has already started raising interest rates with a move to 0.25 percent in December, the ECB has largely resisted such a move with the bank’s president Christine Lagarde frequently suggesting no change would be likely in 2022.

The central bank’s position has attracted some criticism in Europe, particularly in Germany where inflation has reached six percent.

German papers have labelled Ms Lagarde as ‘Madam Inflation’ and ‘luxury Lagarde’ while the ECB has seen frequent opposition from former head of the German central bank, the Bundesbank, Jens Weidmann, who stepped down at the end of 2021.

Mr Brown also cited an “increasingly positive global risk appetite, clearly shown by continued impressive performance of equity markets, amid increasing confidence that the Omicron Covid variant is milder than previous iterations of the disease”.

Indeed stock markets have also seen an explosion into the new year with the FTSE opening up over one percent on its first day of trading in 2022.

Shares in oil companies, hospitality, travel and aviation all climbed suggesting bullish sentiment over Omicron.

Both British Airways operator IAG and easyJet rose over 10 percent while Rolls Royce, which has heavy exposure to aviation, rose just over four percent.

Oil giants Shell and BP both saw stock prices up over three percent as did Premier Inn owner Whitbread.

AJ Bell Investment Director Russ Mould commented that there was “no sign of an extended New Year hangover for UK markets” with the FTSE in “fine fettle”.

However, he cautioned: “There is the possibility the market might change its mind on Omicron again if there are signs the sheer volume of cases threatens to overwhelm countries’ health systems.”

Similar market trends are being seen in the US where markets opened yesterday to see significant gains, with the S&P 500 Index closing at a record high.

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Leading the US surge has been Apple which briefly became the first $3trillion (£2.2tr) company

Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, commented: “Product sales were the driving force, testament to the might of Apple’s brand around the world and its legions of fans should also help it be resilient in a higher inflation environment.

“While other big ticket items might be left lingering in virtual shopping baskets, Apple’s products are likely to continue to sell well, given their coveted status.”

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