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The Reason behind the Sharp Gains in the British Pound

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British pound rallied against US dollar

The British pound (FXB) appreciated against the US dollar for the week ended September 8, 2017. The pound (GBB) closed at 1.32, appreciating 1.9% against the US dollar (UUP). There were no major economic data reported for the British economy that week. All the gains in the British pound can be attributed to the weakness in the US dollar.

British equity markets (BWX) traded on a mixed note last week, and the FTSE 100 index (EWU) posted a negative close at 7,377.6, which was 0.82% lower than the previous week.

Speculators remained bearish on the British pound

According to the latest COT (Commitment of Traders) report released on September 8, 2017, by the CFTC (Chicago Futures Trading Commission), speculators added to their short positions on the British pound. The change in the number of contracts was lower this time with 1,372 short positions added and the total outstanding short contracts at 52,927.

Week ahead for the British pound

From the United Kingdom, the key event this week will be the Bank of England’s (or BOE) policy meeting on September 14, 2017. It’s not likely that there will be any changes to the current rate of 0.25%, and the focus will probably be on the tone of the post-meeting statement. The BOE has turned bearish in recent months and is expected to remain so going forward, at least until the Brexit negotiations take some shape. Unemployment and inflation data are also expected to be reported but may take a back seat to the BOE meeting.

For the British pound, as long as uncertainty surrounding a Brexit lingers, there’s always the risk of a correction.

In the next part of this series, we’ll analyze why the Japanese yen appreciated in the previous week.

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