Interconnection between Crude Oil Prices and Exchange Rate: Unleashing the Evidence from United Kingdom FTSE

Hassan Nasseredine (), Farrukh Nawaz () and Umar Kayani ()
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Hassan Nasseredine: College of Business Administration, American University of the Middle East, Egaila 54200, Kuwait
Farrukh Nawaz: Faculty of Business Studies, Arab Open University (AOU), Riyadh, Saudi Arabia.
Umar Kayani: College of Business, Al Ain University, Abu Dhabi, United Arab Emirates.

International Journal of Energy Economics and Policy, 2025, vol. 15, issue 4, 789-796

Abstract: The present research questions the intricacy of dependencies between FTSE 100 stock index and two vital economic indicators - crude oil prices and the EUR/GBP exchange rate with Dynamic Conditional Correlation Multivariate Generalized Autoregressive Conditional Heteroscedasticity (DCC-MGARCH) model. The study is framed around three principal research questions: will crude oil supply disruptions or cost hikes squeeze the FTSE 100 constituents profit margins, is increasing or decreasing the EUR/GBP exchange rate able to cause shifts in the index values, what are the overall effects of fluctuations in these variable on stocks volumes in the FTSE 100?Result of the two separate regressions provides evidence for the positively significant correlation of crude oil prices with FTSE 100 index and negatively impact of stronger EUR against the GBP on the index. The aforementioned results demonstrate the fact that the stock market of UK is highly sensitive to the changes in its oil prices and exchange rates, surely that these two variables have to be taken into consideration while forecasting or making investment strategies. Taken literally, the findings underscore the importance of systematic assessment of these signals for the financial community and devoted stakeholders in order to tackle the problem of the international financial market, which is getting more and more intricate. The research adds a lot to the wider understanding of the significance of major economic forces in the UK and the impact these forces have on the market dynamics. It may be helpful to risk managers and investors who want to implement strategic measures.

Keywords: Crude Oil Prices; Exchange Rate per Euro; Multivariate GARCH model; FTSE 100 index (search for similar items in EconPapers)
Date: 2025
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DOI: 10.32479/ijeep.19298

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