The British pound could appreciate against the U.S. dollar before the Bank of England reveals its Monetary Policy Committee discussion, Morgan Stanley says. Investors can also track the currency’s movements through the related exchange traded fund.
Morgan Stanley strategists led by head of global currency strategy Hans Redeker believe sterling will strengthen as the March minutes could reveal a quickening recovery due to spare capacity, reports Eshe Nelson for Bloomberg. The minutes will be released Wednesday March 19.
The analysts point to a target of $1.6950, with a downside limit of $1.6560 if the currency weakens. The pound currently trades around $1.6638.
“We expect the pound to gain some support during the week,” the analysts said in a note. “We could see some of the more hawkish views, regarding slack in the economy, starting to become apparent in the minutes, which should provide sterling with some support. The pound could also gain from some safe-haven flows in the expected risk-off environment.” [BoE Stands Pat, Lifts U.K. ETFs]
Sterling is considered a safe-haven, or hard currency, during volatile conditions. The currency could see further safe-haven demand on escalating tensions over the Crimea peninsula.
Along with the minutes, the U.K. employment report will also be announced. According to economists, the U.K. jobless rate will likely stay at 7.2% in the three months through January, which is still lower than the 7.8% for the same period a year ago.
“In addition to the annual budget, we have the U.K. employment report and the minutes from the most recent Bank of England monetary policy meeting scheduled for release,” Kathy Lien at BK Asset Management said in a Pound Sterling Live article. “Based on the PMIs, the labor market data should be strong and for the most part we do not anticipate a change in the central bank’s monetary policy bias because there has not been any major changes in the economy since the last meeting.”
ETF investors can track the pound sterling’s movements against the dollar through the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB). FXB is based off a deposit account denominated in British pound sterling. FXB has gained 0.3% yea-to-date and is up 9.9% over the past year.
CurrencyShares British Pound Sterling Trust
For more information on the GBP, visit our British pound category.
Max Chen contributed to this article.