These are not good days for the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB), which tracks the British pound’s movement against the U.S. dollar. Down more than 10% year-to-date, FXB is easily one of this year’s worst-performing currency exchange traded funds and its post-Brexit slump has not shown any signs of abating.
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.
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.
Compounding the pounds potential woes is the fact that although BOE did not lower interest rates at its last meeting, some traders are betting that there is a 100% chance that lower rates in the U.K. are seen by the end of this year, perhaps as soon as BoE’s next meeting.[related_stories]
“The political shakeup has resulted in a new prime minister, cabinet, a new government ministry for EU negotiations, mass resignations from the Labour shadow cabinet, and an extremely contentious race for leadership of the Labour Party. Prime Minister Theresa May has walked an extremely delicate line, declining to specify a date when the United Kingdom will trigger Article 50, the two year process for a member state to leave the European Union. The Prime Minster has recently met with Angela Merkel of Germany and Francois Hollande of France to discuss the timing of EU negotiations,” according to OptionsExpress.