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The pound is trading around an eight-week high against the dollar on Tuesday morning, helping push the UK’s benchmark stock index to its worst drop in two months.
Sterling hit a high of $1.2606 today and at publication time was up 0.28 per cent for the day at $1.2595.
The dollar continued to slip against most of its major peers on the first full day of trading after the Easter break, amid lingering geopolitical concerns and weak inflation data released while European markets were closed.
However, sterling was performing particularly well on Tuesday, also rising 0.2 per cent against the euro to €1.1829, its highest level since late February.
British stocks, in contrast, were among the worst performers in Europe. The FTSE 100 was down 1.06 per cent at publication time, its first one-day drop of more than 1 per cent since January 17.
Mining companies led the decline in response to falling commodity prices. The price of iron ore in China dropped to its lowest level since November on Tuesday, as new data showed further signs of a slowdown in demand in local house price growth. Construction in China is a key driver of demand for the key steelmaking ingredient.
The stronger pound put additional pressure on the FTSE 100 more broadly. The UK’s benchmark index has closely followed the pound in recent months, tending to rise when the currency falls and vice versa. It is dominated by multinational companies, which benefit from a weaker pound that makes their exports more competitive and increases the relative value of foreign earnings.
The more domestically-focused FTSE 250 fell 0.5 per cent, more in line with declines across the rest of Europe.