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British Pound: Momentum?

On the US perspective, The British pound rose to the highest level since the Brexit referendum in June 2016, reaching $1.44. Besides a more positive outlook on the situation of Brexit, raising expectations of an interest rate hike by the Bank of England are seen as the culprits.

Data from the Commodity Futures Trading Commission shows leveraged funds as most bullish on the Pound since 2014, marking the fifth successive week of improved sentiment towards the UK currency. Currently, the Pound is trading at a ten-month high against the Euro. The currency is suspected to be boosted by prospects of a 'soft Brexit'. Recently, Britain is expected to have struggled for foreign investment as consequences of Brexit worried new investors.

Other researchers remain bullish. Concerns over the UK economy slowing and performing poorly to its peers is creating downward pressure. There remains a high likelihood of momentum loss after the Q4 growth rate and Q1 projections were revised downward. Yet, CFTCF data does show that the sentiment has changed; the Sterling is still cheap on historical basis due to the market’s high net short. Overall, the pound has remained relatively stable, which could be a sign that investors are patiently waiting for further developments in the political arena before reacting.

Keith Knutsson of Integrale Advisors commented, “While bets have declined against the pound, investors should remain focused on the fact that the market is still betting $2.043 billion against the pound. There was increasing pessimism in the weeks leading up to this report, and investors should be careful to jump ships without further consideration. Going forward, looking at the soon-to-be-released data of UK wage growth, we could see momentum build up.”

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