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Why the British Pound Rallied Sharply in the Week Ended March 23

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Nov. 20 2020, Updated 4:25 p.m. ET

The British pound gained ~1.4% against the US dollar

The British pound (FXB) rose ~1.4% against the US dollar (UUP) for the week ended March 23. The pound (GBB) closed for the week at 1.4134 compared to a close of 1.3941 in the previous week. 

A hawkish Bank of England, a transition deal in the Brexit negotiations, and a weak US dollar all contributed to the strong rally of the British currency. At its March meeting, the Bank of England left the rates unchanged with a vote of 7–2, as two members wanted an immediate rate hike. This is a strong indication that the rates could rise at the next meeting, possibly boosting the pound.

British equity markets (BWX) were impacted by increased concerns about a global trade war, and it closed lower in the previous week. The FTSE 100 Index (UKX) fell ~3.4% for the week ended March 23, 2018, and closed at 6,921.94.

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Speculators decrease bullish positions

According to the March 23 Commitment of Traders (or COT) report, released by the Chicago Futures Trading Commission, speculators have increased their overall bullish positions by 15,780 contracts in the previous week. 

The total outstanding net long contracts increased from 8,027 contracts to 23,807 contracts on March 20.

The week ahead for the British pound

With many positive outcomes in the previous week, the pound has rallied over the last few sessions. However, sustaining this rally could be tricky as the negotiations surrounding the Irish border could stop the pound from rising higher. 

The economic calendar remains light for the UK next week. The Q4 GDP is the only major release before the UK markets close for the Good Friday weekend. 

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