Why Bank of England’s Increased Flexibility Is Good for the Pound

British pound helped by hawkish BoE

The British pound (FXB) depreciated by 0.11% against the US dollar (UUP) for the week ending June 22 to close at 1.33. The minor decline was because of the forex market adjustments, but the previous week was highly positive for the pound. The Bank of England (or BoE) in its policy statement sounded hawkish and announced that the UK Treasury would pump 1.2 billion pounds ($1.6 billion) of capital into the BoE, which increases the ability of the BoE to take on higher risks to manage the economy.

British equity markets (BWX) reacted positively to this announcement, as financial institutes based in the UK could benefit from this new measure. The FTSE 100 Index (EWU) appreciated by 0.63% for the week ending June 22 and closed at 7,682.3.

Why Bank of England’s Increased Flexibility Is Good for the Pound

Speculators decreased bullish positions

As per the latest commitment of traders report, released on June 22 by the Chicago Futures Trading Commission, speculators have decreased their overall bullish positions on the British pound (GBB) by 30,175 contracts in the previous week. The total outstanding net contracts changed from 10,969 long interest to 19,206 short interest.

The week ahead for the British pound

The opposing forces of a hawkish BoE and the standstill in Brexit negotiations are likely to keep the British pound in a range in the near future. This week’s GDP figures could test the BoE’s hawkishness, as a strong economic performance could cement the hawkish outlook. If there are no surprises from economic data, we can expect sideways price action for the pound this week.