Do changes in the exchange rate affect UK equities?
The following chart plots the monthly returns of the sterling/US dollar (GBPUSD) exchange rate against the FTSE 100 Index for the period 1971-2012.
As can be seen there is very little correlation. Changes in GBPUSD have no consistent influence on the FTSE 100 Index on a monthly basis.This is not period-dependent, a chart for the more recent period 2000-2012 is little different.
The following chart is similar, except instead of the FTSE 100 it plots the FTSE 250 Index against GBPUSD (this time for the period 1985-2012).
Again, as with the FTSE 100 Index, there is negligible correlation.