Pound Rebound Cut Short as Traders Pine for Positive Brexit Newsby
Sterling in worst month since June as Brexit concerns persist
Short-positioning on pound is ‘very extreme’: BNP Paribas
The pound halted a rally from Wednesday, failing to build on its only gain versus the dollar in the past six days.
Sterling was mixed against its 16 major peers, having outperformed all but one of them on Wednesday, after Prime Minister Theresa May agreed to give British lawmakers the chance to scrutinize the plan for taking the U.K. out of the European Union. The optimism faded on Thursday as investors returned their focus to concerns over May’s perceived hard-line stance on leaving the single market. This week’s slide leaves the pound down about 6 percent versus the dollar in October, headed for its worth month since June.
“There’s still scope for a bounce in the pound on positive news surprises, given that short-positioning is very extreme and that sterling valuations are very cheap,” said Sam Lynton-Brown, a foreign-exchange strategist at BNP Paribas in London. “But as the various parties involved in the Brexit process are staking out their negotiating positions, it doesn’t look like the negative news flow will moderate anytime soon.”
The pound was little changed at $1.2188 as of 4:06 p.m. London time, after its 0.7 percent gain on Wednesday. Sterling weakened 0.3 percent to 90.44 pence per euro.
“Traders were already bearish on the pound, and yesterday was just a breather, with the market questioning itself” over its pessimism, said Jordan Rochester, a foreign-exchange strategist at Nomura Holdings Plc in London.
Reason to Sell
Britain’s currency failed to perk up even after figures showed the U.K. housing market strengthened in September, after the shock inflicted by the Brexit vote faded and a shortage of properties for sale persisted.
“In sterling, good data is just used as further reason to sell it,” said Nomura’s Rochester. “You saw, after good PMI surveys the pound rallied as a short reaction but then it was sold on the rally,” he said, referring to purchasing-managers indexes of sentiment.
A legal case is being heard in London beginning Thursday on whether Prime Minister May has the right to invoke Article 50 without consulting Parliament. The section of the EU’s Lisbon Treaty triggers a two-year process to withdraw from the bloc. Should the judge rule against the government, the lawsuit may potentially delay the Brexit process.
Hedge funds and other large speculators increased their net-short futures positions in the pound to a record in data going back to 1992, the Commodity Futures Trading Commission said last week. A short position profits from a decline in the currency.
The pound “is still groping for the bottom,” said Steven Barrow, head of currency strategy at Standard Bank Group Ltd. in London. “We don’t know whether it will test or surpass the lows we saw last week.”