Hopes that a potential Brexit deal might come out of talks with the EU, days after discussions were paused, sent the pound soaring, and the markets plunging.
Michel Barnier, the chief negotiator for the European Union, said on Wednesday that an agreement between the UK and the bloc was still “within reach”.
The negotiations have been in limbo since last week, when there was no breakthrough at a key summit.
The news lit a fire under the pound, sending it up by 1.5% against the US dollar by the end of the trading day in Europe, to 1.3136 dollars. Against the euro, it gained 1% to 1.1068.
“The pound went wild thanks to a Bloomberg report stating that, after a few days of posturing from Boris Johnson and the like, Brexit talks are set to restart, with the intention of reaching a deal by mid-November,” said Spreadex analyst Connor Campbell.
“This after No 10 described Michel Barnier’s recent comments – including his belief that a deal is ‘within reach’ – as ‘significant’.”
The FTSE 100 includes many companies that rely heavily on foreign customers, so when the pound soars, the index often drops value because it makes it more expensive for foreign companies to buy their products.
Wednesday was no different to usual, as the FTSE dropped 112.72 points, to end the day at 5776.5, a fall of 1.9%.
“Stocks like Diageo, AstraZeneca, Unilever and GlaxoSmithKline and British American Tobacco are weighing on the British index because of the rally in the pound,” said David Madden, analyst at CMC Markets.
“The companies all earn a relatively high portion of their total revenue from overseas, so sterling’s positive run has pushed them into the red.”
However, markets on the continent also rose, with Germany’s Dax index increasing by 1.4%, and the Cac in Paris adding 1.5%.
US investors were more optimistic, with both the Dow Jones and the S&P 500 trading relatively flat when markets closed in Europe.
In company news, shares in Metro jumped 2.5% after it revealed that deposits were up by 10%, and it had provided £1.3 billion in Government-backed Covid-19 loans to British businesses.
William Hill’s shares also ended in the green, gaining 0.4% despite warning that the local Covid-19 lockdowns would close one in 10 of its betting shops.
The value of Brent crude oil had dropped by 2.7% at 5pm on Wednesday, hitting 41.98 US dollars per barrel.
The biggest risers on the FTSE 100 were Evraz, up 12.8p to 374.2p, Antofagasta, up 9p to 1,055.5p, NatWest, up 0.85p to 116.3p, Kingfisher, up 1.3p to 321.4p, and Aveva, up 15p to 4,500p.
The biggest fallers on the FTSE 100 were IAG, down 6.4p to 100.45p, Melrose Industries, down 7.15p to 127.3p, GVC Holdings, down 53.5p to 971p, Compass Group, down 57p to 1,145p, and Fresnillo, down 58p to 1,275p.