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Reasons for the 2.3% Appreciation of the British Pound

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British pound breaks 1.40

The British pound (FXB) posted its sixth consecutive weekly gain against the US dollar last week. For the week ended January 26, 2018, the British pound (GBB) closed against the US dollar (UUP) at 1.4170, appreciating 2.3%. That level for the pound was last seen during the Brexit vote June 2016. A comeback to this level is an indication that investors are hoping for a soft Brexit. Economic data from the United Kingdom and the global US dollar weakness added to the positive momentum of the pound.

British equity markets (BWX), however, failed to surge higher since export-dependent companies stand to lose the benefits of a weak pound. The FTSE 100 index (EWU) closed the week ended January 26 at 7665.54, depreciating 0.84%.

Speculators turned bullish on British pound

According to the latest COT (Commitment of Traders) report released on January 26 by the CFTC (Chicago Futures Trading Commission), speculators increased their bullish positions on the British pound for the fourth consecutive week. The total outstanding net positions increased from 26,204 contracts to 33,045 contracts for the week ended January 26. With the chances for a soft Brexit increasing every day and the economy continuing on its growth trajectory, there could be further gains in long positions in the weeks ahead.

Outlook for the British pound

This week, economic data from the United Kingdom include manufacturing and construction PMI (Purchasing Managers’ Index) reports. The major mover for the pound could be the US dollar demand in the global markets. If the US dollar fails to rebound this week, there could be further gains in the major currencies, including the British pound.

In the next part of this series, we’ll see how the Bank of Japan drove the yen higher last week.

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