The British currency has been on a roll this year and touched the highest level against the U.S. dollar in almost six years early this week. Most of the upside was driven by improving economic fundamentals and the prospect of interest rate hikes sooner than expected.
In fact, the two British currency Exchange Traded Products – CurrencyShares British Pound Sterling Trust (ETF:FXB) and iPath GBP/USD Exchange Rate ETN (ETF:GBB) – have been the best performers in the currency ETF space over the trailing one-year period. FXB is up 12.7% while GBB has gained slightly more at 14.7% for the same period. However, this trend might not continue long given mixed economic indicators and some technical weakness.
Bright Spots
The U.K. economy is growing faster than most of the developed economies and the Euro zone nations. This has been confirmed by the latest manufacturing data from Markit, which shows that June activity picked up at its fastest pace in six months, making the second quarter one of the best over the past two decades for manufacturers (read: Ride the British Economic Uptrend with These 2 ETFs).
The recent consumer survey by the global market researcher GfK also points to the highest consumer confidence level in more than nine years in June, boosting the growth outlook for the country.
Inflation has risen to 1.9% in June from 1.5% in May but is still below the central bank's target of 2%. Unemployment is declining, with the rate dropping to the lowest level in six years to 6.5% in May.
Improving consumer confidence, rising inflation and falling unemployment ...
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