The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) is off 1.7% over the past month, but currency traders should keep an eye on the British pound ETF in the near-term because the next several days could prove impactful for FXB.
The U.S. dollar has developed a reputation, well-deserved at that, for being one of the strongest currencies in the world for more than a year. However, the Federal Reserve’s recent decision to pass on raising interest rates could be a black cloud over the greenback.
Another developed market currency, one that can be accessed by an exchange traded fund, could get the benefit of rate hike in the near-term and could be bad news for the dollar, but good news for FXB.
But sterling and FXB could be the securities as some market participants are betting the Bank of England is inching closer to boosting borrowing costs. [Opportunity With Sterling Hedged ETFs]
The stronger British currency can also help bolster returns for United Kingdom ETFs that do not hedge against currency risks. For instance, the iShares MSCI United Kingdom ETF’s (NYSEArca: EWU) tracks U.K. companies and is exposed to shifts in the Forex, so an expanding U.K. market coupled with a stronger pound could translate to greater U.S.-dollar returns.