Why the Bank of England Failed to Drive the British Pound Higher
The British pound collapsed after the BoE statement
The British pound (FXB) depreciated 0.40% against the US dollar (UUP) for the week ending November 3. The pound (GBB) closed the week at 1.3076, tumbling in value against its trading peers as the Bank of England (the BoE) gave no direction for the future path of interest rates. The British central bank has increased interest rates by 0.25% but said future rates would depend on economic data. Economic data reported last week was better than expected, and the key services sector PMI was reported at 55.6—a notable rise from the September value of 53.6.
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Speculators turned bullish on the British pound
As per the latest “Commitment of Traders” (or COT) report released on November 3 by the Chicago Futures Trading Commission (or CFTC), speculators added bullish positions on the British pound after three weeks of falling. The total outstanding net positions were 1,245 long contracts, compared to 1,485 short contracts the week before. This change to the long position is likely to be short-lived as the BOE disappoints investors with its interest rate outlook.
Week ahead for the British pound
Another round of Brexit negotiations is set to begin on Thursday, and any positive or negative news from this event is likely to impact the British pound this week. Disagreement about the divorce settlement is the key issue holding back the first phase of negotiations. The next phase would be about trade relations, which is likely to have a larger impact on the markets.
Apart from Brexit-related news, there are no other major economic events to be reported this week.
In the next part of this series, we’ll see why the Japanese yen depreciated after the Bank of Japan’s monetary policy statement.