The British Pound: Economic Realities Weigh On The Relief Rally From Historic Lows

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Ahan Analytics
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Summary

  • The British pound rebounded sharply thanks to a brief change in monetary policy from the Bank of England.
  • With the tailwinds gone, the economic reality of recession and less aggressive-than-expected monetary policy stalled the relief rally until the U.S. dollar plunged on signs of weakening inflation.
  • While the pound is making a bullish turn against the U.S. dollar, I still prefer to look for the next catalyst to go short the currency.

Recession Warning Green Road Sign Over Dramatic Clouds and Sky.

Feverpitched

The Invesco CurrencyShares British Pound Sterling Trust (NYSEARCA:FXB) is up 10.1% since the British pound fell to record lows against the U.S. dollar. That relief rally is still in place despite last week's sobering meeting of the

The British pound has been buffeted in recent weeks by major economic and political events.

The British pound has been buffeted in recent weeks by major economic and political events. (TradingView.com)

The Monetary Policy Report (November, 2022)

Inflation is soaring in the UK (TradingView.com)

Projected GDP growth has downside risks until the second half of 2024.

Projected GDP growth has downside risks until the second half of 2024. (The Monetary Policy Report (November, 2022))

The yield on the 10-year gilt has finally roundtripped back to its level right before the crisis of confidence.

The yield on the 10-year gilt has finally roundtripped back to its level right before the crisis of confidence. (FT.com)

FXB is finally breaking out of a downtrend that has lasted all year.

FXB is finally breaking out of a downtrend that has lasted all year. (Seeking Alpha)

This article was written by

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4.54K Followers
Dr. Duru has blogged about financial markets since the year 2000. A veteran of the dot-com bubble and bust, the financial crisis, and the coronavirus pandemic, he fully appreciates the value in trading and investing around the extremes of market behavior. In this spirit, his blog "One-Twenty Two" (https://drduru.com/onetwentytwo/) delivers a different narrative for students and fans of financial markets. Dr. Duru challenges conventional market wisdoms and offers unique perspectives. The blog posts cover stocks, options, currencies, Bitcoin, and more, while leveraging the tools of both technical and fundamental analysis for short-term and long-term trading and investing. Some of these ideas and analyses are also featured here on Seeking Alpha.Dr. Duru received a B.S. in Mechanical Engineering (and an honors degree in Values, Technology, Science and Society - now simply STS) from Stanford University. For graduate studies, Dr. Duru went on to earn a Ph.D. in Engineering-Economic Systems (now Management, Science, and Society). Dr. Duru's work experiences include:*Independent consulting in operations research and decision analysis*Management consulting in product development and technology strategy*Price optimization software for computer manufacturers and internet advertising (including a shared patent for methodology)*Business Intelligence and Data Analytics, including some Data Science and Data EngineeringConsulting practice: https://ahan-analytics.drduru.com/

Disclosure: I/we have a beneficial long position in the shares of FXY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I rated FXB a buy because it is in a technically bullish position. However, that rating will change to a sell if FXB closes below the downtrend line again.

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