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Highlights
- The pound has made a new low against the US dollar after the announcement of the UK’s third-quarter GDP number.
- Weaker domestic currency adversely impacts the companies that import foreign goods while it is beneficial for export-oriented businesses.
Pound Sterling made a new low against the US dollar after the announcement of third-quarter GDP number. The UK economy grew at 1.3% during the quarter, behind the forecast of 1.5%, and substantial lower compared to 5.5% growth reported during the second quarter of 2021, leading to a decline in Sterling to its lowest level since December 2020.
The currency slipped below the crucial support level of USD 1.34, adding to the pressure of the last week when the Bank of England decided to keep interest rate unchanged, against the general market sentiments of the interest rate hike.
While weaker domestic currency reduces the purchasing power and makes foreign goods expensive, adversely impacting the importing companies. However, businesses that make most of their sales in the overseas market and do the financial reporting in the pound benefit from the weaker currency.
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Let us look at FTSE listed companies that might get benefitted from the weaker pound:
Diageo Plc (LON: DGE)
The company operates in the alcoholic beverage segment offering different beverages under various brand names. It has operations in over 180 countries. The company generates a majority of its revenue from the overseas market but reports its earning number in the pound. Hence, its revenue and profitability will boost when the overseas revenue is converted back into the pound. The company’s business continues to witness strong business performance because of resilient consumer demand.
Diageo Plc’s current market cap stands at £88,637 million as of 12 November 2021.
British American Tobacco Plc (LON: BATS)
The company offers tobacco and vapour products in different countries. It has operations in over 180 countries. Although the company is headquartered in the UK, its major revenue comes from the US and Asia-Pacific region, while the UK market contributes a fraction of the sales. Around 38% of the revenue comes from the US market, while Asia-Pacific and the Middle East contribute the rest of the revenue. However, the company reports its earnings in pounds. The current scenario of weaker domestic currency is beneficial for the company as it generates most of its sales in overseas markets.
British American Tobacco Plc’s current market cap stands at £59,443 million as of 12 November 2021.
Glaxosmithkline Plc (LON: GSK)
FTSE 100 listed company operates in the pharmaceuticals and biotechnology segment offering drugs for different diseases. The company has operations in over 160 countries and does export-oriented business. It reported total revenue of £9,077 million, a rise of 10% on a constant exchange rate basis, while its operating profit was £1,938 million during the third quarter of 2021. The company has a positive outlook for upcoming quarters, and its revenue might be further boosted due to the weaker pound.
GlaxoSmithKline Plc’s current market cap stands at £79,995 million as of 12 November 2021.
