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Why the British Pound Rallied to 15-Month High

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British pound closed above 1.4

The British pound (FXB) appreciated against the US dollar for the week ending September 15. The pound (GBB) posted a weekly close of 1.4, appreciating by 3.0% against the US dollar (UUP). The British pound had an impressive recovery from levels near 1.2 as economic data showed that the economy has weathered the Brexit storm and political uncertainty. The key reason for last week’s surge was the hawkish tone from the Bank of England. Interest rates were left unchanged, but the fact that many of the members were looking at reducing stimulus in the coming months drove the British pound higher.

British equity markets (BWX) traded on a negative note last week, and the FTSE 100 Index (EWU) posted a negative close of 7,215.5, down by 2.7% for the week ending September 15.

Speculators reduced bearish bets on the British pound

As per the latest commitment of traders (or COT) report released on September 15 by the Chicago Futures Trading Commission (or CFTC), speculators reduced short positions on the British pound. The total outstanding short positions were 46,085 contracts as compared to 52,927 contracts in the previous report. There could be a steep drop in short positions after the Bank of England’s signal it would reduce stimulus.

Week ahead for the British pound

Politics and Brexit will take center stage in the UK this week. UK Prime Minister Theresa May is scheduled to speak in Florence on Friday, and her speech could give some clarity on the progress of Brexit negotiations. UK retail sales data is due to be reported on Wednesday, and the data could induce some volatility in the British pound, but the positive momentum from the BOE statement is likely to support the pound.

In the next part of this series, we’ll analyze why the Japanese yen depreciated last week.

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