The British pound sterling exchange traded fund strengthened after a four day losing streak as the Bank of England hinted that they may raise interest rates sooner-than-expected due to the strengthening economy.
The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) was up 0.8% Wednesday. FXB is down 2.4% year-to-date.
The BOE stated in its quarterly Inflation Report that the unemployment rate could dip to its 7% target, which would lead the central bank to consider hiking rates in the third quarter of 2015, Bloomberg reports.
“Both the Bank of England’s new projections and the development in terms of employment should be positive for the pound,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., said in the article. “The pound has room to strengthen further although some may argue that a lot of that has already been in the price.”
The jobless rate currently stands around 7.6%, the lowest since 2009.
“Sterling remained generally supported after the BOE Inflation Report signaled that rate hikes could come a year earlier than previously expected on the back of improving outlook for employment and growth,” Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc., said in a note. “The BOE GDP forecasts are still well above market consensus and could encourage the street economists to revise up their own projections.”
As of Nov. 7, the BOE is maintaining its asset-purchase target of 375 billion pounds, or $599.1 billion, and interest rates at 0.5%.
The iShares MSCI United Kingdom ETF (NYSEArca: EWU) is up 2.9% over the past month, up 5.9% in the last three months and 13.8% higher year-to-date. EWU holds British pound-denominated U.K. large- and mid-cap stocks, so a strengthening pound would help bolster returns when converted back into U.S. dollars. [A Spot of Tea With U.K. ETFs]
CurrencyShares British Pound Sterling Trust
For more information on the British pound, visit our British pound category.
Max Chen contributed to this article.