Down 10.4% year-to-date, 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.
Much of FXB’s bearishness is attributable to speculation about Brexit, Great Britain’s departure from he European Union, and the subsequent June vote that shocked global financial markets confirming that Britain will in fact depart the EU. FXB is lower by nearly 7% over the past three months and is confronting headwinds beyond Brexit.
SEE MORE: Currency-Hedged U.K. ETFs for Improving Earnings, Depreciating Pound
Last month, the Bank of England pared its benchmark rates to a record low 0.25% from 0.5% and anticipates it will further bring it down toward zero ahead, the Wall Street Journal reports. The BOE also revived its government bond-buying program, which has been on pause since 2012, along with purchasing corporate bonds as well.
[related_stories]FXB could again be in focus in the coming days amid a spate of important economic data points out of the U.K.
Unemployment data is forthcoming and “Thursday will feature a meeting of the Monetary Policy Committee. While the Monetary Policy Committee is widely expected to leave rates unchanged at 0.25%, there will be considerable interest in this week’s economic data,” according to OptionsExpress.
SEE MORE: Brexit Continues to Drag on Pound ETF, Sends GBP to Three-Decade Low
Looking ahead, many expect the Bank of England to enact more accommodative measures to help bolster the economy. In the post-Brexit environment, Martin Weale, one of the bank of England’s long-time hawks, is even beginning to turn dovish on their policy outlook.
Some ETFs have the potential to benefit from the sliding pound, namely currency hedged funds such as the Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK), iShares Currency Hedged MSCI United Kingdom ETF (NYSEArca: HEWU), WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS).
The iShares MSCI United Kingdom ETF (NYSEArca: EWU), the largest US-listed U.K. ETF, is not a currency hedged product.
Looking at “the three month continuation chart, we see that the Pound has continued to trade in a fairly tight range since the results of the EU referendum. The 20 day Simple Moving Average (SMA) and the 50 day SMA have converged. Both of these moving averages are now serving as a support level around the 1.3160 level,” adds OptionsExpress.
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CurrencyShares British Pound Sterling Trust
