Worst Month in 16 Years for the Pound

The British Pound fell 8% against the U.S. dollar in August, the biggest monthly decline since 1992.

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The pound has been weakened as prospects for the UK economy look increasingly gloomy.

The UK has been hurt by declining housing prices and threat of a recession.  According to Britain’s Telegraph last week, high inflation and failing growth has raised fears of “stagflation” in the British economy, and the need to curb inflation without further smothering economic activity has left the Bank of England’s Monetary Policy Committee split over whether to raise or cut interest rates.

At the same time, strong exports have helped the US economy stay out of recession. The Commerce Department last week revised the Q2 GDP growth rate upward from 1.9% to 3.3% as exports were much stronger than previously thought.

The ETF with the most direct exposure to the Pound-Dollar relationship is the CurrencyShares British Pound Sterling Trust (FXB).  FXB is designed to track the price of the British Pound Sterling net of Trust expenses and is short sale and margin eligible.

The PowerShares DB US Dollar Bullish Fund (UUP) tracks a long USD futures contracts and is designed to replicate the performance of the dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc.