Sterling ETF Strengthens as Traders Most Bullish Since 2011

ETF Trends

The British pound sterling exchange traded fund has been steadily rising as traders pushed up bets this month, with hedge funds and other large speculators at their most bullish on the currency since 2011.

The CurrencyShares British Pound Sterling Trust (FXB) rose 1.6% over the past month and is up 1.3% year-to-date.

As of April 22, long bets on the U.K. currency exceeded shorts by 47,800 contracts, the previous week’s net longs were 50,598, the most since February 2011, Bloomberg reports.

“Sterling’s story is actually very different from other FX investments — sterling is a major currency with an actual trend behind it,” Richard Cochinos, the head of Americas Group-of-10 currency strategy at Citigroup Inc., said in the article. “And it’s trending higher.”

The pound sterling has been appreciating as traders speculate on tightening Bank of England monetary policies. [BoE Bets Bolster British Pound Sterling ETF]

Moreover, foreign demand for U.K. assets has also supported gains in the pound sterling currency.

“Overseas entities looking to buy U.K. entities and another surge in house prices, in part down to foreign-interest demand, are two key pillars for current and future pound strength,” Neil Jones, the head of hedge-fund sales at Mizuho Bank Ltd., said in a note. “A market cannot move without flows, and the flows are firmly buying the pound. I expect further buying.”

However, some strategists remain cautious due to a widening current account deficit and slowing inflation, which could push back any BoE monetary tightening.

“The market has romanticized about the possibility that the BOE will become the first [major country] to hike rates,” Brian Daingerfield, a currency strategist at RBS, said in the article. “The U.K. story right now is near-term positive, and significantly medium-term negative, for sterling.”

The CurrencyShares British Pound Sterling Trust is based on a deposit account denominated in British pound sterling.

The stronger British currency can also help bolster returns for United Kingdom ETFs that do not hedge against the pound sterling. For instance, the iShares MSCI United Kingdom ETF’s (EWU) tracks U.K. companies and does not hedge its currency risk, so a rising U.K. market coupled with a stronger pound sterling would translate to greater U.S.-dollar returns.

CurrencyShares British Pound Sterling Trust

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For more information the U.K. currency, visit our British pound category.

Max Chen contributed to this article.

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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