The FTSE 100 index has bounced back recently after Donald Trump softened his stance on the tariffs and after the US reported the latest economic numbers. The index, which tracks the biggest companies in the UK, rose to £8,200 on Wednesday, up sharply from the year-to-date low of £7,545. This surge happened as the GBP/USD pair soared to its highest point in months.
UK stocks are bouncing back
The FTSE 100 index has bounced back in the past few months as investors reacted to a decision by Donald Trump to scale back his tariffs.
His initial reciprocal tariff on the UK was relatively smaller than other countries. He set a 10% tariff, much lower than the 20% he set on the UK.
The index has also done well because the biggest companies in the index will not be highly affected by his tariffs.
AstraZeneca, the biggest FTSE 100 stock, is a pharmaceutical company, meaning that it is a bit immune to tariffs and a recession. Historically, these companies are usually less affected by downturns because insurance companies pay for most prescription drugs.
Shell stock price will be impacted because of the potential crude oil price crash. In a recent note, we warned that Brent and WTI benchmarks may drop to $40 in the next few months.
HSBC, the third-biggest FTSE 100 stock has a small exposure to the US after it sold its operations there.
Other top companies like Rio Tinto, Rolls-Royce, GSK, London Stock Exchange, National Grid, and BAE Systems will also not be affected by these tariffs. The same is true with popular stocks like Lloyds, Tesco, and NatWest.
The British pound has surged
The FTSE 100 index has also bounced back because of the ongoing British pound surge. The GBP/USD exchange rate has surged to 1.3263, its highest point since October last year. It has jumped by almost 10% from its lowest level this year.
The GBP/USD pair rallied after the UK published the latest inflation data. According to the Office of National Statistics (ONS), the headline consumer inflation fell from 2.8% in February to 2.6% in March. The core CPI, which excludes the volatile food and energy prices, fell from 3.5% to 3.4%.
While the decline was minimal, the fact that it dropped is a sign that analysts expect the Bank of England (BoE) to deliver another rate cut later this year. The FTSE 100 index does well when the BoE is slashing interest rates.
FTSE 100 technical analysis
FTSE 100 index chart | Source: TradingView
The daily chart shows that the FTSE 100 index has bounced back in the past few months, moving from a low of £7,545 earlier this month. It has moved above the crucial resistance level at £8,000, its lowest level in November and December last year.
However, the index still remains below the 50-day and 200-day Exponential Moving Averages (EMA), a sign that it is still bearish.
Therefore, the most likely scenario is where the index drops, the support is retested at £8,000, and then the bullish trend resumes. The FTSE 100 index will likely rise and retest its highest point this year once the tariff jitters ease.
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