The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) is perhaps the most obvious victim of last week’s Brexit decision and that is reflected in the pound exchange traded fund’s loss of nearly 5% over the past week.
Many currency market observers are forecasting more pain for sterling in the weeks ahead, a situation that could be worsened if the Bank of England (BoE) moves forward with lowering interest rates. That scenario could come to pass.
The Bank of England could cut interest rates to bolster the British economy, potentially supporting currency-hedged exchange traded fund strategies as a United Kingdom play.
Bank of England Governor Mark Carney said the central bank could cut interest rates in the months ahead to support growth in the wake of the Brexit shock and ensuing uncertainty, reports Scott Hamilton for Bloomberg.[related_stories]
While Britain has voted to leave, the country is not out of the E.U. yet. Senior E.U. officials have stated that the U.K. should immediately follow Article 50 as part of the process by which a member state leaves the E.U. The Article states that the U.K. would negotiate and settle arrangements for its withdrawal, taking account of the framework for its future relationship with the Union, the Washington Post reports. The leaving member will be given two years to comply.
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.
“The BOE’s monetary policy committee meets next in July. Carney said the central bank would release a report assessing the initial impact of economic damage at that meeting and a fuller report at the August meeting,” reports Amey Stone for Barron’s.
For more information on the British markets, visit our United Kingdom category.
CurrencyShares British Pound Sterling Trust
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.