Michel Barnier, EU’s chief Brexit negotiator, eased tensions on Aug 29 as an offer was made for an unprecedented partnership with Britain after Brexit, so that trade is not hampered. This came as a relief for the hard-hit sterling bulls who had already started trading, assuming no deal-Brexit via the currency derivative markets.
Apart from EU’s chief negotiator’s comments, market expectations of a rate hike by the Bank of England (BoE) also played a role in pushing the pound higher. Per an article published on Bloomberg, market watchers started betting on a slightly faster pace of policy tightening from the BoE, “fully pricing in an interest-rate rise
in November 2019.”
Investors should note that Dominic Raab, Britain’s Brexit secretary left the possibility open in the House of Lords that Britain could withhold the 39 billion euro payment it had agreed to pay EU if there is a no deal-Brexit. The foreign exchange analysts predicts that pound sterling will fall to the level of $1.2 in the absence of mutual consensus on the exit, a Reuters poll found this month. Traders have started betting on the weakening of sterling against the euro (read: German ETFs in Focus as Q2 GDP Growth Accelerates
On the back of strengthening pound against the dollar, the CurrencyShares British Pound Sterling Trust
(FXB - Free Report
) saw an increase of 1.24% on Aug 29.
ETF in Focus
FXB tracks the price of British pound sterling and is rebalanced quarterly. It has an AUM of $156.2 million and an expense ratio of 0.4%. The daily traded volume is nearly 38000 on average. However, it was surpassed by a huge margin on Wednesday as 1,34,000 shares exchanged hands. It has a Zacks ETF Rank of #3 (Hold) with a Medium risk outlook.
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