British pound under pressure
The British pound (FXB) was unchanged against the US dollar (UUP) last week despite the dollar’s rally stalling, possibly due to the BOE’s (Bank of England) move to leave policy rates unchanged. Recent disappointing economic data led to a sudden change in expectations for a May rate hike, resulting in the continued depreciation of the British pound.
British equity markets (BWX) are enjoying the pound’s weakness and have managed a seventh consecutive positive week, aided by continued positive momentum across global markets. The FTSE 100 (EWU) rose 2.1% last week, closing at 7,724.6.
Speculators decrease bullish positions
According to the Commodity Futures Trading Commission’s May 11 commitment of traders report, speculators decreased their overall bullish positions on British pound (GBB) by 17,384 contracts last week, to 8,988 contracts from 26,372—the lowest level in two months. These short positions are likely to continue until BOE rate hike expectations change.
The week ahead for the British pound
Whereas the BOE has left the gates open for a rate hike in August, its weak outlook on the UK economy is likely to limit any strong gains for the pound in the near term. The UK labor report is scheduled to be published today, and wage improvement could limit the pound’s fall. In the last part of this series, we’ll discuss why the Japanese yen has continued to depreciate for a seventh consecutive week.