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What Lies ahead for the British Pound in 2018?

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British pound posted minor gains last week

The British pound (FXB) had a comeback year in 2017. The British currency (GBB) recovered 8.0% of its value against the US dollar (UUP) in 2017 but lost additional ground against the euro.

Brexit remained the key driver for the British pound in 2017. The negotiations have now moved to the second phase, and any new developments toward its completion could be positive for the British pound. For the week ended December 29, the British pound has appreciated by ~1.2% against the US dollar.

British equity markets (BWX), unlike the European markets, closed with positive gains in the previous week. The FTSE 100 Index (EWU) closed for the week at 7687.77, appreciating by ~1.3%.

Speculators turned bullish on the British pound

According to the latest Commitment of Traders (or COT) report, released on December 29 by the Chicago Futures Trading Commission (or CFTC), speculators decreased their bullish positions on the British pound.

The total outstanding net positions decreased from 20,388 contracts to 12,676 contracts for the week ended December 29.

Outlook for the British pound

The outlook for the British pound in 2018 looks optimistic, as most of the negative news surrounding Brexit has been priced in. If the discussions on the Brexit terms move forward, we can expect further relief for the pound in the year ahead.

In this week, the UK manufacturing, construction, and services PMI reported are due to be released. We can expect a marginal reduction in these indexes for December owing to the holidays, and they should spring back higher in January.

In the final part of this series, we’ll analyze the price performance of the Japanese yen after the Bank of Japan’s monetary policy meeting minutes were reported.

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