By Carla Mozee, MarketWatch

Bank of England decision ahead

U.K. stocks fell Thursday, as blue-chips opened at their lowest level since December 2016, under pressure from a jump in the pound.

Sterling built on gains as the U.S. dollar slumped, after the U.S. Federal Reserve dampened hopes for a fourth interest rate hike this year.

A monetary policy update from the Bank of England and an update on U.K. retail sales due later will be watched for their impact on the pound and, in turn, stocks.

How markets are moving

The FTSE 100 index fell 0.4% to 12,160.77, with all sectors in the red. On Wednesday, the benchmark fell 0.3% (http://www.marketwatch.com/story/ftse-100-loses-ground-as-retailers-drop-with-fed-decision-in-focus-2018-03-21) , hurt by losses for retailers as well as strength in the pound.

The pound on Thursday climbed to $1.4172, from $1.4140 late Wednesday in New York. Sterling has risen about 1.6% against the greenback so far this week, and by roughly 0.9% against the euro .

What's driving markets

London-listed blue-chip stocks made their worst start to trading in more than a year, according to FactSet, alongside losses for other European stock markets .

Those declines largely stem from gains for the pound and the euro against the U.S. dollar, as sterling traded around its highest level since early February. A stronger pound can hurt stocks on the FTSE 100, as about 75% of revenue for its multinational components is made overseas.

The dollar fell against most major currencies after the Fed signaled three interest rate increases in 2018, disappointing investors hoping for four hikes after upbeat inflation and labor data. The U.S. central bank did raise its benchmark fed funds rate as expected (http://www.marketwatch.com/story/fed-lifts-rates-in-powells-first-meeting-says-outlook-has-strengthened-2018-03-21) on Wednesday.

The Fed's monetary policy tends to drive financial markets globally, as many companies do business in the word's largest economy and it can lift borrowing rates for them.

Bank of England, retail sales

Investors are now focusing on the BOE monetary policy statement, due at 12 p.m. London time, or 8 a.m. Eastern Time.

The U.K. central bank isn't expected to make any significant move, but policy makers will be watched for signs they will raise interest rates in May. Figures released Wednesday showed U.K. wages grew by 2.6% in January (http://www.marketwatch.com/story/uk-wage-growth-accelerates-in-january-2018-03-21) , seen as strengthening the case for that hike.

A reading on British retail sales in February may help drive the direction of sterling before the BOE decision. Analysts are looking for a rise of 1.5% year-over-year, according to a FactSet survey. The data are scheduled for release at 9:30 a.m. London time, or 5:30 a.m. Eastern..

What strategists are saying

"In our view, although data on Tuesday showed that inflation slowed by more than anticipated, and below the bank's own forecasts, the EU-U.K. agreement on a transition period, combined with accelerating wages may allow the BOE to maintain its hawkish bias, and thereby support further the pound," said Charalambos Pissouros, senior market analyst at JFD Brokers.

"Market participants are likely to maintain their bets that a May hike may be on the cards. On the other hand, anything pointing to a more cautious stance than what the market is currently anticipating could cause sterling to slide," he said in a note.

Stock movers

Reckitt Benckiser Group PLC (RB.LN) shares rallied 7.5% after the consumer goods company said it's ending talks about its potential purchase of Pfizer Inc.'s (http://www.marketwatch.com/story/reckitt-benckiser-ends-talks-to-buy-pfizer-unit-2018-03-22-44851030)(PFE) consumer health-care business. Reckitt Benckiser said it was looking to buy just part of the business, but that goal couldn't be met.

The move is seen as leaving GlaxoSmithKline PLC (GSK.LN) in prime position to buy the Pfizer assets. GSK shares were down 1%.

GKN PLC (GKN.LN) fell 0.3% after the company said it continues to view the GBP8.1 billion ($11.4 billion) hostile takeover offer from Melrose Industries PLC (MRO.LN) as entirely opportunistic (http://www.marketwatch.com/story/gkn-melrose-offer-still-wholly-inadequate-2018-03-22-44851155). Its statement came after Melrose announced it had come to an agreement with GKN's pension-scheme trustees.

Shares of Halma PLC (HLMA.LN) fell 3.5% after the safety, health and environmental tech group said foreign-exchange benefits have reversed and pretax profit for the full year will be in line with market forecasts (http://www.marketwatch.com/story/halma-sees-2018-profit-in-line-with-forecasts-2018-03-22).

Check out:Brexit hard-liners fling fish into River Thames in bizarre protest (http://www.marketwatch.com/story/brexit-hard-liners-fling-fish-into-river-thames-in-bizarre-protest-2018-03-21)

 

(END) Dow Jones Newswires

March 22, 2018 05:32 ET (09:32 GMT)

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