Down nearly 16% year-to-date, the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB), which tracks the British pound’s movement against the U.S. dollar, is already one of this year’s worst-performing currency exchange traded funds.
Unfortunately for sterling bulls and FXB, the currency’s slide has been hastened throughout this year by a variety of macro factor, giving supporters few reasons to initiate new long positions. That ominous trend seems to be continuing.
Currency markets were already on edge with the British government setting a timeline for a break from the European Union in what some see as a potential “hard Brexit.” Discounting the Friday flash crash, the pound has depreciated around 6% against the U.S. dollar since Monday and is on course for its worst weekly performance since the Brexit vote.
However, when examining pound-related exchange traded products trading outside the U.S., there are signs that some traders are betting that the pound is poised to rebound. Recent data suggest inflationary pressures in the U.K. could prove problematic for sterling.
“Bank of England Governor Mark Carney testified before the Parliamentary Treasury Committee on Tuesday as well. The Governor suggested that the lower October numbers should not be taken as a sign of decreasing inflationary pressure. He noted that prices paid by factories for raw materials increased substantially in October,” according to Options Express.[related_stories]
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.
“UK interest rates are now at a record low 0.25%. Balancing the anticipation for lower growth with higher inflation will be a tricky path for the Bank of England in the next two years ahead as the UK dives into the uncharted waters of leaving the European Union,” adds Options Express.
Following Brexit, the Bank of England added a new term-funding program for banks, providing lenders ultra-cheap, four-year loans to help finance lending for households and businesses as an additional step to stimulate the economy.
For more information on the GBP, visit our British pound category.
CurrencyShares British Pound Sterling Trust