The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) is down 2.7% year-to-date. Amid “Brexit” talk and now that Great Britain has set a referendum date of late June on the matter, FXB and the pound could face more volatility.
Even ambitious estimates say there is just a 30% chance of Brexit coming to pass. Still, sterling remains one of the worst-performing developed market currencies in the world this year. With the Federal Reserve poised to raise interest rates several more times this year and market observers thinking the Bank of England (BOE) will be forced to put off doing the same, the dollar could be headed for more upside against the pound.
Goldman Sachs “believes Britain will remain in the EU, but its macro markets strategy team has looked at what would happen to the pound if the vote goes the other way. It predicts that such an outcome would alarm foreign investors and put them off injecting capital into Britain, placing pressure on the current account deficit,” reports The Guardian.
Previously, currency traders saw the pound as one of the developed market currencies that could rally against the dollar because the Bank of England was likely to raise interest rates. That did not happen and now bets are that BOE stands pat.
“Although the announcement of the date removes one aspect of ambiguity for traders, they now face months of polls and campaigning that could boost volatility further. With traders already pushing back bets on the timing of a Bank of England interest-rate increase, the prospect of Britain leaving the world’s largest single market had been causing further concern, helping push down the pound against most of its Group-of-10 peers this year,” reports Eshe Nelson for Bloomberg.