The above chart clearly displays the recent bullish performance of Britain’s all-share index, the FTSE 100. The performance of the index heading into 2017 has been nothing short of phenomenal, with upward momentum clearly driving the FTSE to its current level around 7176.63. That the UK premiere index is performing so strongly may come as a surprise to many investors and day traders. Financial bookmakers are going long on the index, with projections above the current level. Just last week, the premier UK index closed at its highest level. Traders may be wondering why the FTSE 100 is performing so strongly, given the ever-present Brexit fears. Fortunately, the explanation of the FTSE’s recent performance is rather simple: mining stocks have been trading much higher. The mining sector endured an incredible rally across the board, and this helped to lift the FTSE 100 to its current levels. But there is also another reason why the FTSE is rushing out of the gates at breakneck speed: the GBP.

What’s going on with the GBP and why is it affecting the FTSE 100 index?

The Brexit referendum placed the tremendous pressure on the sterling. Around June 2016, the GBP was trading at 1.47/1.48 to the USD. Soon thereafter, the GBP/USD pair hit a 31-year low and was hovering around 1.21/1.22. A weaker GBP has important implications for the UK economy, not least of which is its effect on companies based outside of the UK. For every EUR, in USD or JPY earned aboard, the repatriated earnings in GBP are worth significantly more. Since the FTSE 100 index is primarily comprised of foreign-based companies, the earnings are not in GBP, but in foreign currencies. When these earnings are brought back to the UK, it appears as if inflated profits are being generated. The currency effect is an important one to bear in mind when evaluating the performance of a blue-chip index like the FTSE 100. Approximately 75% of the FTSE is made up of foreign companies. The FTSE 250 index is British-based and that’s precisely why it’s performance has soured since the Brexit and the sharp devaluation in the GBP.

Why does the strength of the USD impact the FTSE 100 index?

Another reason why the FTSE 100 index is struggling is the USD. We know that the Fed has raised interest rates by 25-basis points to 0.50% – 0.75%. The federal funds rate (FFR) is an important barometer for the strength of the USD. As demand for the greenback increases, so the GBP/USD pair weakens. This has a domino effect on multiple currencies, not only the GBP. But the net effect is a negative for the sterling. We also have another important factor coming to play, notably a better oil price. With commodities prices rising, UK companies involved in mining and exploration abroad are also seeing increase profits. With a stronger USD and higher dollar-denominated price for crude oil, this naturally increases profitability. All London-listed corporations which earn in USD are now benefiting from a weaker GBP. As a case in point, the Intercontinental Hotel group reported increases of 3.8%.

What are the takeaways from the Brexit and the current state of the UK economy?

Speculation leads to one of two outcomes: in the money or out of the money. Every time analysts have attempted to pin down the market, they have been wrong. The Brexit decision did not adversely affect the UK economy (yet), and the FTSE 100 index has hit record levels. However, the UK manufacturing sector is holding firm and it increased from 53.6 to its current level of 56.1. These numbers are simply an indication that the mood is increasingly bullish (any figure above 50 is good for business). In fact, the manufacturing sector is going to benefit from a weaker GBP, as exports are going to rise. All in all, the mood is positive for the FTSE 100 index as we kick of 2017.

What should Binary Traders Watch?

As a binary options trader, keep a close watch on the performance of the GBP/USD pair. The stronger the dollar, the better the prospects for a rising FTSE 100. Additionally, you’ll want to watch the commodities sector for mining stocks. A rising oil price is also good for business. Other economic data to bear in mind include the UK manufacturing index data. Provided the momentum is with the aforementioned factors, the FTSE 100 index is going to hold steady.