Perhaps no currency exchange traded fund has been more controversial this year than the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB), which tracks the British pound’s movement against the U.S. dollar.
That controversy has only increased in the wake of Great Britain’s stunning decision to depart the European Union (EU), also known as Brexit. 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.
The pound has declined to a three-decade low for the past two days on increased evidence the Brexit vote is weighing on confidence in Britain’s economy, Bloomberg reports.
For instance, Henderson Global Investors suspended a 3.9 billion pound, or $5 billion, property fund, Wednesday after money managers, including Aviva Investors and Standard Life Investments, sent a stream of redemption requests in the wake of the Brexit uncertainty.[related_stories]
“It is tempting to view the new lows in the British Pound as an opportunity for a breakout trade downward, but we caution against that. If you are working on a relatively slow time frame, we think there should be better opportunities to take short positions later on, from higher levels. Traders working on faster time frames may even want to fish for counter-trend long entries here,” according to See It Market.
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.
“As we mentioned in our earlier post, the large A-B-C structure eventually should take the Pound to lower lows beneath the present area, but it may take a year or longer to get there. In the meantime, there should be an opportunity for an upward or sideways correction that could last several months – perhaps even a year,” adds See It Market.
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CurrencyShares British Pound Sterling Trust