Will Bank of England Propel the British Pound Higher This Week?


Oct. 31 2017, Updated 7:32 a.m. ET

British pound is waiting for a rebound

The British pound (FXB) depreciated 0.46% against the US dollar (UUP) in the week ending October 27. The pound (GBB) closed for the week at 1.31, dragged lower by the US dollar’s strength. The preliminary estimate for the third quarter GDP was the only important data release last week. The estimate was for 1.5% year-over-year growth, which was in line with expectations.

British equity markets (BWX) remained largely unchanged, and the FTSE 100 Index (EWU) posted a close of 7,505.00, down 0.24% for the week ending October 27.

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Speculators drastically cut bullish positions

As per the latest Commitment of Traders (or COT) report released on October 27 by the Chicago Futures Trading Commission (or CFTC), speculators cut their bullish positions on the British pound for the third week in a row. The total outstanding net positions were 1,485 short contracts as compared to 5,047 long contracts the week before. Net speculative positions have moved back to negative territory after turning positive for the first time on September 19, which could change again if the Bank of England turns hawkish at its November monetary policy meeting.

Week ahead for the British pound

The key event for the British pound thise week is the Bank of England’s (or BOE) monetary policy statement on Thursday. Markets are expecting an interest rate hike from the BOE. Such a view has emerged because of the hawkish statement from the BOE last month. A rate hike from the BOE is likely to drive the British pound higher this week.

The British pound is likely to stay supported even if there is an indication of a rate hike soon. If the BOE, against all expectations, says that the rates will stay lower for a few more months, there could be a sell-off in the British pound similar to the euro’s sell-off after the dovish ECB statement last week.

In the next part of this series, we’ll look at why the Japanese elections have led to depreciation in the yen.


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