The CurrencyShares British Pound Sterling Trust (NYSEArca: FXB), which tracks the British pound’s movement against the U.S. dollar, is easily one of this year’s worst-performing currency exchange traded funds.
With sterling recently residing at its lowest levels in more than three decades, investors are wondering when the pound will rebound and if now, after FXB’s savage beating, is the time to consider nibbling at the ETF. Some currency market observers argue that recent economic data out of the U.K. supports a bearish thesis on sterling.
The British exit will cost the European Union one of its wealthiest members and one of its biggest military powers.
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.
Related: As Bank of England Mulls Rate Cuts, More Pound Punishment Likely
“Suffice it to say economic sentiment remains gloomy for the world’s sixth-largest economy. And yet by the same token the weight of expectations on future economic data is so low that even a small positive surprise could force an important British Pound relief rally. Recent CFTC Commitment of Traders data shows large speculators are now at their most net-short GBP/USD since the week of June 3, 2013,” according to DailyFX.
The pound has been the worst performing asset since the U.K.’s decision to leave the E.U., and the majority of analysts who’ve changed their forecasts since the referendum results are now projecting the currency to remain depressed.
Related: U.K. ETFs, FTSE 100 Rebound After Brexit Sell-Off
Although the Bank of England keep rates on hold at its most recent meeting, some market observers believe a rate cut is coming in the near-term and that would likely mean more weakness for the pound.
“We need only look to the British Pound’s fast rally on July 20 following unexpected comments out of Bank of England voting member Kristin Forbes. Forbes stood in sharp contrast to BoE Governor Mark Carney as she suggested the central bank’s Monetary Policy Committee should not cut interest rates until there is more evidence of a post-Brexit economic slowdown. It is certainly newsworthy that a voting member would so candidly break rank and speak out against rate cuts,” according to DailyFX.
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CurrencyShares British Pound Sterling Trust
