What’s Driving the British Pound Lower against the US Dollar?

British pound below 1.33

The British pound (FXB) depreciated against the US dollar (UUP) for the fifth week in the last six weeks as Brexit-related developments and a strengthening US dollar drove it lower.

A series of weak economic data coupled with a dovish Bank of England (or BOE) have been causing the pound to slide compared to the US dollar. The economic data reported last week indicated that inflation had grown more slowly than expected, decreasing the possibility of a rate hike from the BOE.

What’s Driving the British Pound Lower against the US Dollar?

British equity markets (BWX) posted their first weekly loss in nine weeks, reflecting a weak equity market sentiment across the globe. The FTSE 100 Index (EWU) fell 0.62% in the week that ended on May 25 to close at 7,730.28.

Speculators decreased bullish positions

As per the latest Commitments of Traders report, which was released on May 25 by the Chicago Futures Trading Commission, speculators increased their overall bullish positions on the British pound (GBB) by 80 contracts last week. The total number of outstanding net long contracts had risen from 5,621 to 5,701 as of May 22. The overall positioning is moving toward net short territory as rate hike prospects from the BOE continue to fall and economic data continue to disappoint.

The week ahead for the pound

Economic data from the United Kingdom this week are limited to the May PMI (purchasing managers’ index) report, which is scheduled to be released on June 1. For the pound, the key driver will likely be the strength of the US dollar, as there are no major changes expected with respect to the economic outlook for the British economy.