Photographer: Akos Stiller/Bloomberg

There’s a New Normal for Trading the Pound

  • Asian trading turned bullish for the pound, even as it fell
  • Investor positioning signals plenty of room for more declines

The pound’s collapse to 30-year lows after Brexit has transformed intraday trading patterns for sterling, according to Deutsche Bank AG.

The pound traditionally weakened during Asia’s day and the London morning, before strengthening in peak liquidity times when London and New York desks were both operating, and then on through the whole of the U.S. day. Since Brexit, Asia and the London morning have turned slightly bullish, while the rest of the 24-hour session has seen systematic selling of the pound, according to analysts led by Deutsche Bank macro strategist Oliver Harvey.

One scenario: Asian investors may now see sterling as a value proposition after the currency dropped against all major peers in 2016, while domestic and European investors remain more pessimistic on the Brexit outlook. Another possibility, though not cited by Deutsche Bank, is that Brexit talks and U.K. developments are simply less visible on Asian traders’ radar screens.

A study of pound derivatives trading highlights that politics -- unsurprisingly -- has been the main driver for sterling, Deutsche Bank says. The analysts concluded that whatever optimism there is for the currency, there’s very little conviction on a longer-term basis, leaving plenty of scope for further declines. They highlighted trader positioning data, which show that large speculators remain short the currency, though less so than in the run-up to Brexit.

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