Why the British Pound Has Continued to Rally


Apr. 19 2018, Updated 7:33 a.m. ET

British pound breaches 1.4 against the US dollar

The British pound (FXB) appreciated by 1.1% against the US dollar (UUP) in the week ended April 13. The pound (GBB) closed the week at 1.42, compared with 1.41 in the previous week. The rise of the British pound despite soft economic data was because of hawkish comments from the Bank of England, which is expected to increase interest rates soon. US dollar weakness in recent weeks has also added to demand for the pound.

While British equity markets (BWX) were impacted by increased trade war concerns, indexes managed to close in positive territory for a third consecutive week. The FTSE 100 (EWU) rose 1.1% in the week ended April 13, closing at 7,264.6.

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According to the latest Commitment of Traders report, released on April 13 by the Commodity Futures Trading Commission, speculators increased their bullish positions by 2,678 contracts in the previous week. Total outstanding net long contracts increased from 40,338 contracts to 43,016 contracts as of April 10.

The week ahead for the British pound

Optimism surrounding the British pound has been fueled by the hope for a rate hike from the Bank of England next month. There is a lot of important economic data to be reported this week that should indicate the outlook for a rate hike next month. If the data supports a rate hike, we can expect continued appreciation for the pound. Otherwise, a correction could be on the cards. In the next part of this series, we’ll look at how the Japanese yen has been performing amid this uncertainty.


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