August 9, 2018 / 3:03 PM / 8 months ago

Sterling slide no longer a boost for Britain's FTSE 100

FILE PHOTO: Wads of British Pound Sterling banknotes are stacked in piles at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger

(This August 9 story has been refiled to fix embedded graphic)

By Helen Reid

LONDON (Reuters) - Sterling is sinking as fears mount of a “no-deal” Brexit, but for Britain’s top share index the currency’s weakness may no longer offer a boost.

In the six months after the Brexit vote for instance, the FTSE 100 .FTSE - whose predominantly dollar-earning multinational members see their profits flattered by sterling weakness - rebounded 22 percent as the pound tanked 18 percent to the dollar GBP=D3.

While that was the strongest recent example of negative correlation between the currency and the index, there were other instances, including in 2013 and 2006.

But during periods of rising interest rates and higher inflation, this negative correlation has tended to reverse - a trend already noticeable in recent months and which has moved to zero a week after the Bank of England’s recent quarter-point rate rise.

That indicates there is no longer any linear relationship between the FTSE and sterling.

If the direction of travel persists, the FTSE 100 and the pound could soon be positively correlated for the first time since December 2016 - bad news for UK stocks, as sterling slumps to a near one-year low.

Investors who poured money into FTSE 100 exporters hoping they would act as a safe hedge against Brexit risk may have to look elsewhere.

Reporting by Helen Reid; Editing by Sujata Rao and David Holmes

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