Sterling ETF Doesn’t Look Too Stellar

ETF Trends

CurrencyShares British Pound Sterling Trust (FXB) was lower in early U.S. trading Wednesday after British retail sales plunged and the minutes from the Bank of England meeting this month revealed members are split on further quantitative easing. Policymakers were unanimous, however, on keeping interest rates at 0.5%.

Following a plethora of interest rate cuts over the past several weeks by global central banks, it is not hard to find declining currencies. One noteworthy example of a tumbling developed market currency ETF is the CurrencyShares Australian Dollar Trust (FXA), which has slid 4.4% in the past month. [Australian Dollar ETF Tumbles]

Earlier this month, the Reserve Bank of Australia pared interest rates to 2.75%, a record low, from 3%. Combine that with news that hedge fund luminaries such as George Soros and Stanley Druckenmiller are bearish on the Aussie and it is easy to explain the currency’s recent woes.

The Aussie is just one example a weakening developed market currency. While the U.S. dollar looks weak on a historical basis, the PowerShares DB Dollar Bullish (UUP) cannot be included among the ranks of flailing currency ETFs. The fund has risen 4.4% year-to-date.

Rather, next up on the currency hit parade could be the British pound, which means more declines could be in the offing for the CurrencyShares British Pound Sterling Trust (FXB). Actually, FXB and the pound are already under the siege as the ETF has slid 6.2% year-to-date.

Sterling looks vulnerable. Just this month, GBP/USD has fallen four cents. Putting that into context with FXB, the ETF flirted with $154 earlier this month but now languishes below $149.90.

There is also Tuesday’s U.K. inflation data. Or is it deflation data? U.K. CPI for April fell to 2.4% from 2.8%, missing the consensus estimate of 2.6% while PPI declined by 2.3%, way off the estimate of -1.2%, according to MarketPulse FX.

Tuesday’s data points could serve as an ominous sign for sterling and FXB heading into Wednesday when traders will digest not only commentary from BoE, but also U.K. retail sales data. Following its meeting earlier this month, BoE left interest rates unchanged and made no alterations to its bond-buying program.

Recent data indicate the U.K. economy has narrowly averted another recession and with interest rates at 0.5%, the central bank has some, though not much wiggle room left to cut rates. Noteworthy for FXB is the fact at recent meetings, several BoE members – including governor Sir Mervyn King – have voted to added 25 billion pounds to the bank’s 375 billion-pound quantitative easing program, the BBC reported.

Firm support for GBP/USD is 1.50 and any violation of that level could take FXB back to its March lows around $147. The ETF has not closed below $147 in nearly three years.

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ETF Trends editorial team contributed to this story.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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