Reminding investors that some political risk still looms in Europe, the CurrencyShares British Pound Sterling Trust (NYSEArca: FXB) fell 1.7% last week as another Brexit-related election looms in the U.K. early next month.
The United Kingdom general election of 2017 is scheduled to take place on June 8, 2017.
FXB’s decline represents one of the ETF’s worst weekly performances this year as the pound has been sturdy among developed market currencies and British stocks have been solid. FXB is still up 3.8% year-to-date.
“Sterling tumbled Friday, putting it on course for its worst week this year against the dollar, as a poll showed the Conservative Party’s lead over the main opposition Labour Party has narrowed to five percentage points,” reports Bloomberg. “That came after weeks of surveys showing a bigger Tory lead had made the vote all but a foregone conclusion for the market. The tighter poll prompted a measure of expected volatility that covers the June 8 election to jump by the most since October’s flash crash.”
Currency hedged ETFs, including the iShares Currency Hedged MSCI United Kingdom ETF (NYSEArca: HEWU), WisdomTree United Kingdom Hedged Equity Fund (NasdaqGM: DXPS) and Deutsche X-Trackers MSCI United Kingdom Hedged Equity ETF (NYSEArca: DBUK), are benefiting from sterling weakness.
The iShares MSCI United Kingdom ETF (NYSEArca: EWU), the largest U.K. ETF trading in the U.S., is not currency hedged, meaning it can be vulnerable to pound weakness.
Sterling still faces multiple challenges as Great Britain sets out on its Brexit course. British Prime Minister Theresa May is aiming for a swift departure from the European Union (EU) while some market observers around the world are hoping for a more measured approach.
Year-to-date, investors have pulled over $56 million from FXB, but with U.K. stocks surging, EWU has seen inflows of about $446.3 million.
“While the latest poll was conducted after the Manchester terror attack, the Tories’ narrowing lead was more likely to have been caused by a row over an unpopular policy on elderly care, Anthony Wells, a research director at YouGov, told the Times newspaper. Most previous surveys had given Prime Minister Theresa May a lead about 10 points or above,” according to Bloomberg.
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