The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) was a predictable victim of Great Britain’s decision to depart the European Union, also known as Brexit. On the back of last Thursday’s Brexit outcome, FXB tumbled nearly 8.4% on volume that was almost 29 time the daily average to a new 52-week.
Some market observers see more pain ahead for the British currency, which means more of the same for FXB. FXB tracks sterling’s price action against the U.S. dollar.
Earlier this year, FXB hit an all-time low as speculation intensified that Great Britain’s departure from the European Union is a real possibility. Market observers almost universally believe such an event would be pound negative. Moody’s has warned that it could downgrade U.K.’s credit rating if the country leaves the union. Some well-known asset managers and banks are chiming in, confirming that the pound and British stocks could suffer in the wake of a “Brexit.”
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“The British Pound dropped by 12% in a little over six hours as news of the referendum vote was filtered in to markets. This sent prices below the Financial Collapse low of 1.3500 before recovering; and that recovery has seen a 3.9% bounce off of the lows. And this is a currency, so a 3.9% movement in a day is jaw-dropping, much less a 3.9% movement retracing an earlier -12% slide,” said James Stanley, Currency Analyst at DailyFX, in a note out Friday.
In a knee-jerk reaction to the global sell-off following the Brexit tally, investors piled into the safety of U.S. Treasuries to preserve capital, pushing yields toward record lows – yields on benchmark 10-year Treasury notes plunged.
[related_stories]“BlackRock’s Cameron Watt told Reuters many investors who buy the currency now are likely speculating on being able to sell it later, which could create more selling pressure later this year,” reports Reuters.
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Looking ahead, this Brexit vote could trigger another Scotland referendum on breaking away from the United Kingdom. A 2014 referendum on Scottish independence resulted in the country remaining with the U.K., but the results were largely contingent on E.U. membership.
“Watt said the markets’ fierce reaction came because investors piled into riskier financial assets and European currencies in the week leading up the British referendum,” according to Reuters.
For more information on Brexit, visit our Brexit category.
CurrencyShares British Pound Sterling Trust
