Spike in dollar drags FTSE down

A spike in the US dollar triggered by the prospect of smaller-than-expected stimulus measures from the Fed caused mining stocks to slide and dragged the London market lower today.

The greenback’s improvement made dollar-driven mining stocks less attractive, with Xstrata down 3% or 36.6p to 1277p and Rio Tinto off 76p to 4083p. The FTSE 100 Index was on the back foot as a result, down 23 points at 5684.

The dollar rallied after a speech by a key policymaker suggested that a second round of quantitative easing in the US may see a smaller than expected amount of new money being pumped into the economy.

Investors will be looking ahead to US data due later in the session, with durable goods and new home sales figures expected to provide a healthcheck for the state of US recovery. But positive figures could add weight to the argument against further QE, and see the markets fall further.

Oil firms in London were also hit by the strength of the dollar, as crude prices dipped to 81.80 US dollars a barrel. BP was off 3.2p to 423.1p, while Reading-based oil and gas explorer BG Group was down 5p at 1188p.

On the risers board in London, shares in British Airways were 1% higher as the airline took a further step towards it merger with Iberia by publishing shareholder documents relating to the deal. The tie-up should be completed on January 21.

BA, which is due to publish half-year results on Friday, rose 2.3p to 282.2p.

Defensive stocks such as United Utilities and Severn Trent moved to the top of the leaders board as investors sought lower-risk opportunities. Both were up 9p at 607.5p and 12p at 1371p respectively.

In corporate news, British American Tobacco reported a 3% drop in underlying sales volumes in the nine months to September 30.

The world’s second largest tobacco group sold 526 billion cigarettes and said it expected volumes to be soft in the months ahead. The update saw shares lose 24.5p to 2413.5p.

Outside the top flight, shares in flooring firm Carpetright were down 7% after a deterioration in UK like-for-like sales prompted analysts to lower their forecasts for full-year profits. The stock dropped 33p to 697p.

Elsewhere on the FTSE 250, bike chain Halfords jumped more than 4% or 17.1p to 426.7p, after Morgan Stanley advised buying into the recent weakness in shares.