The pound edged up to $1.3417 on Monday, a small move on its own, but one that sits at the centre of how the FTSE 100's many dollar earners translate their profits into sterling.

A quiet move in a loud week

Currency markets were not the main event on Monday 2 November. That honour went to oil, which tumbled on reports that Washington and Tehran were considering renewed negotiations. Even so, sterling was on the move. The pound rose to $1.3417 from $1.3396 on Friday, and traded at €1.1980 against the euro.

That is a gain of roughly 0.16% against the dollar — hardly dramatic. But for the FTSE 100, London's index of the largest listed companies, the Exchange Rate is never a side issue. Many members report in dollars, earn significant Revenue overseas or pay dividends set in US currency. When the pound strengthens, every dollar those companies earn is worth slightly fewer pounds.

The FTSE 100 itself closed Monday at 10,761.33, up 31.55 points or 0.3%, its fourth straight gain. Sterling's firmness did not stop the index advancing, but the currency is set to face a stern test this week, with the US midterm elections on Tuesday and the Bank of England's rate decision on Thursday.

The translation effect, step by step

Companies that earn in dollars but are valued by investors in sterling are exposed to what is often called the translation effect. Profits booked in dollars must be converted into pounds for UK-based shareholders who think in sterling. A higher pound shrinks the converted figure; a weaker pound inflates it.

Illustration: take a hypothetical company earning $1bn of profit. At Friday's rate of $1.3396, that converts to roughly £746.5m. At Monday's $1.3417, it converts to roughly £745.3m. The difference is about £1.2m — small, because the currency move was small. A move of several cents would have a far larger effect. The figures are invented and do not represent any real company.

The same logic applies to dividends declared in dollars. Shell (LSE:SHEL) has declared a quarterly Dividend of 39.06 US cents per share, with an ex-dividend date of 12 November and payment on 21 December. Illustration: at $1.3417, 39.06 cents is worth about 29.11p; at $1.3396, it would be about 29.16p. Shell sets its own conversion rate for sterling payments, so these figures are purely illustrative, but they show how exchange rates nudge what UK holders actually receive.

Pershing Square Holdings (LSE:PSH) also goes ex-dividend on 12 November with a quarterly payout of $0.1837, another reminder that a slice of FTSE 100 income is set in dollars.

The euro matters too. Companies that report in euros, or earn heavily across the Continent, are exposed to the pound's €1.1980 level in exactly the same way. A firmer pound against the single currency trims the sterling value of those earnings, while a softer one flatters them. For an index with such a broad international reach, the two exchange rates together form a quiet but persistent influence on reported numbers.

Several stocks with international exposure had big days on Monday, though for reasons that had little to do with the pound.

Energy stocks, whose products are priced in dollars, fell sharply as Brent Crude dropped to $105.09 a barrel at the London close from $117.61 on Friday. BP (LSE:BP.) slid 4.37%, Shell lost 2.86% and Ithaca Energy (LSE:ITH) fell 5.94%, the biggest drop in the index. BP also completed the $6bn sale of a 65% stake in Castrol to Stonepeak Partners, keeping 35% subject to a two-year lock-up.

Precious metals miner Fresnillo (LSE:FRES) rose 4.56%, with gold climbing to $3,968.02 an ounce from $3,898.22. Gold is priced in dollars, so the move in bullion mattered far more to the shares than the tiny shift in sterling.

International Consolidated Airlines Group (LSE:IAG), which reports in euros, rose 3.8% as lower oil eased fuel cost worries. IAG's Q3 results are due on Friday 6 November, when the company is also set to give guidance on its 2026 dividend.

What could shift the pound this week

The busy calendar means sterling could be far more volatile than Monday's modest move suggests.

US midterms, Tuesday 3 November. All 435 House seats and 35 Senate seats are being contested. The outcome could affect the dollar, and therefore sterling's exchange rate, though the direction is impossible to call in advance.

Eurozone inflation, Wednesday 4 November. Inflation is expected to rise to 3.9%, which could influence the euro and, by extension, the pound's €1.1980 level.

Bank of England, Thursday 5 November. Bank Rate stands at 3.75%, and a rise to 4% is widely expected, with markets pricing around 95%. Because the hike is largely anticipated, sterling's reaction may hinge on the vote split and the Bank's guidance. Market watchers have flagged that any pushback from Governor Andrew Bailey on further tightening would be read as dovish, which could weigh on the pound. A more hawkish message could have the opposite effect.

US payrolls, Friday 6 November. September saw 29,000 jobs added and Unemployment at 4.2%. October's figures will feed into views on US rates and the dollar. Elsewhere, the US 10-year Treasury Yield stood at 4.89% and the 30-year at 5.25%.

Key dates to watch

  • Tuesday 3 November: US midterm elections
  • Thursday 5 November: Bank of England rate decision, with a rise to 4% from 3.75% widely expected
  • Friday 6 November: US October payrolls; IAG Q3 results
  • Thursday 12 November: Shell (39.06 cents) and Pershing Square ($0.1837) ex-dividend dates
  • Monday 21 December: Shell dividend payment

The bottom line

At $1.3417, sterling is a touch firmer than it was on Friday, and on its own that barely registers for the FTSE 100's dollar earners. The bigger point is that the exchange rate is a constant background force for an index packed with companies that earn, report or pay out in foreign currencies. With the US midterms, the Bank of England and US payrolls all landing within four days, this week could test that background force more than most. Investors will be watching whether the pound's next move is measured in fractions of a cent or something larger.