The rise of sterling against the D-Mark continued to exert its grip on exporters and restrained early attempts to push the Footsie higher. The impact of sterling standing stolidly above DM3.00, its highest level for almost eight years, outweighed earlier economic optimism drifting over from the US.
Initially, London wallowed in direction-less intra-market trading, which led the Footsie down 19 points in the first half hour of trading. It rapidly bounced back to a net gain of 23 points as figures showed the trade deficit had narrowed to £508 million in May from £989 million in April.
Dealers were principally looking for a pointer from the Confederation of
British Industry's (CBI), quarterly industrial trends survey.
But when the data came out, they merely confirmed the growing split between exporters and domestic retailers.
The CBI said export orders in the four months to July fell at their fastest rate since October 1991, while domestic demand grew at its fastest rate since
April 1995.
The survey also showed that export optimism was at its lowest level since
October 1980.
NatWest Securities believes the currency issue will be central to market psychology for some time and has raised its short-term sterling/D-Mark target from DM2.85 to DM3.30.
Although analysts were not actually cutting forecasts there was a feeling that some were starting to sharpen their knives.
In late trading, there was further pressure from a slide in the Dow Jones
Industrial average, which reacted to a larger than expected fall in US
unemployment figures.
