Sterling ETF Doesn’t Look Too Stellar

CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) was lower in early U.S. trading Wednesday after British retail sales plunged and the minutes from the Bank of England meeting this month revealed members are split on further quantitative easing. Policymakers were unanimous, however, on keeping interest rates at 0.5%.

Following a plethora of interest rate cuts over the past several weeks by global central banks, it is not hard to find declining currencies. One noteworthy example of a tumbling developed market currency ETF is the CurrencyShares Australian Dollar Trust (NYSEArca: FXA), which has slid 4.4% in the past month. [Australian Dollar ETF Tumbles]

Earlier this month, the Reserve Bank of Australia pared interest rates to 2.75%, a record low, from 3%. Combine that with news that hedge fund luminaries such as George Soros and Stanley Druckenmiller are bearish on the Aussie and it is easy to explain the currency’s recent woes.

The Aussie is just one example a weakening developed market currency. While the U.S. dollar looks weak on a historical basis, the PowerShares DB Dollar Bullish (NYSEArca: UUP) cannot be included among the ranks of flailing currency ETFs. The fund has risen 4.4% year-to-date.

Rather, next up on the currency hit parade could be the British pound, which means more declines could be in the offing for the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB). Actually, FXB and the pound are already under the siege as the ETF has slid 6.2% year-to-date.

Sterling looks vulnerable. Just this month, GBP/USD has fallen four cents. Putting that into context with FXB, the ETF flirted with $154 earlier this month but now languishes below $149.90.

There is also Tuesday’s U.K. inflation data. Or is it deflation data? U.K. CPI for April fell to 2.4% from 2.8%, missing the consensus estimate of 2.6% while PPI declined by 2.3%, way off the estimate of -1.2%, according to MarketPulse FX.