Single currency report shakes London markets
LONDON (AP) _ A report that Britain might try to join Europe’s planned single currency pushed the pound lower Friday and jolted the London stock market into one of its most euphoric rallies ever.
Although the Treasury branded the Financial Times report ``pure speculation,″ the response from traders was swift and spectacular.
London’s benchmark blue-chip stock barometer, the Financial Times-Stock Exchange 100-share index, soared past 5,100 points for the first time, then plowed through the 5,200-point mark.
``It’s been quite a wild day, but I think it was rational,″ said Paul O’Connor, an equities strategist at the brokerage Barclays de Zoete Wedd. ``The outlook for the U.K. is quite bullish.″
The FTSE, or ``footsie,″ index hit an intraday high of 5,244.3, up 178.8 points or 3.4 percent, before drifting slightly lower in midafternoon. It closed at 5,226.3, up 160.8 points or a rise of 3.2 percent.
The idea that Britain would abandon its reluctance to join the single European currency, called the euro, shortly after its launch on Jan. 1, 1999, created a new environment for London shares, traders said.
Britain would need to push the value of its currency, the pound, lower to find a reasonable exchange rate for joining the euro, presumably by reducing interest rates. Lower interest rates would make it easier for British companies to borrow money, and a weaker currency would make their goods cheaper in overseas markets, boosting sales.
The pound fell to 2.8325 German marks, a dip of about 1.6 percent against Europe’s most important currency, while also sliding to $1.6087, a drop of about 1 percent. The weakening pound gave stock traders further encouragement, with some being so bold as to set their sights on a medium-term target of 6,000 points for the footsie stock index.
``We believe there is a real change,″ said Nigel Cobby, who follows stocks for Morgan Stanley International in London. ``It’s all about sentiment. That’s what drives stock markets, and there has been a clear change in sentiment.″
The Financial Times reported that senior members of Prime Minister Tony Blair’s Cabinet were ``openly canvassing″ for participation in the euro _ quite soon after its scheduled 1999 launch by the 15-nation European Union.
The newspaper suggested Blair’s Labor Party government might drop the pound in favor of the euro before Britain’s next national elections, due by 2002.
The government will announce a new stance in a statement to be issued after Parliament resumes at the end of October, the newspaper said, identifying its source only as an unidentified government minister.
Blair’s government has up until now taken a wait-and-see attitude, similar to that of the Conservative government which was ousted in national elections May 1. Opposition to joining the euro in the Tory party split the previous government.
Labor, like the Conservatives, has promised a referendum before adopting the euro.
Scrapping the pound would be a politically delicate issue in a nation where many people oppose closer ties with other EU members.