Hedge Funds Post Record Bearish Pound Bets on Brexit Pessimism

  • Sterling may reach $1.27 if data show slowdown, SEB says
  • It touches 3-year low vs euro before jobs, inflation reports

Brexit and the Week Ahead in U.K. Economic Data

Speculators are the most bearish on the pound since records began as they await data that will give the clearest picture yet of the effects of Britain’s decision to leave the European Union.

Sterling touched a one-month low versus the dollar before reports this week on July inflation, retail sales and jobless claims, which are forecast to show the economy is struggling in the wake of the June 23 referendum. The pound dropped to a 31-year low after the Brexit vote, and resumed its decline following the Bank of England’s decision this month to cut interest rates and boost monetary stimulus.

The U.K. currency fell 0.4 percent to $1.2875 as of 5:10 p.m. in London, touching the lowest since July 11. Sterling dropped to $1.2798 on July 6, and its 13 percent slide this year makes it the worst performer among 32 major peers.

“The pound has broken through some key psychological and technical support levels,” said Angus Nicholson, a market analyst at IG Ltd. in Melbourne. “If, as expected, we see further evidence of the U.K. heading into technical recession, it’s difficult to think of any scenario other than further BOE easing.”

Sterling weakened against Europe’s shared currency for a sixth day, the longest losing streak since February, slipping 0.7 percent to a three-year low of 87.03 pence per euro.

Bearish Bets

Hedge funds and other large speculators boosted net bearish wagers on the pound versus the dollar to 90,082 contracts in the week to Aug. 9, the most in Commodity Futures Trading Commission figures dating from 1992. Investors were last positive on the U.K. currency in November.

While surveys have already signaled contractions in manufacturing, construction and services since the EU referendum, this week’s data will provide more concrete evidence of the state of the economy. The BOE cut interest rates to a record-low and restarted its quantitative-easing program on Aug. 4 in an attempt to shield Britain from the effects of its decision to quit the world’s biggest single market.

The reports will provide “the first real numbers” on the nation’s economy since vote, said Richard Falkenhall, a strategist at SEB AB in Stockholm. “On the back of negative numbers,” the pound could fall to $1.27 or $1.28, he said. “We’re grinding slowly lower.”

— With assistance by Narayanan Somasundaram

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