Photographer: Miles Willis/Bloomberg

A Soft Brexit Bias From May Could Set Stage for Sterling Shorts

U.K. Prime Minister Theresa May’s Brexit speech on Friday could give pound traders just what they’re waiting for: an opportunity to go short after this month’s 4.3 percent rally, the biggest since 2013.

The British premier is expected to try and kick-start negotiations with the European Union in her speech in Florence, Italy and is considering whether to discuss the EU’s demand for an exit bill payment. Any conciliatory overtures could see sterling rally to fresh highs, providing investors with more attractive levels to sell ahead of the Conservative Party conference less than two weeks away, where a far more euroskeptic presence is expected.

“I could imagine Friday getting a very soft, nice version of Brexit but then that quickly flipping at the Conservative conference where the audience is perhaps a little bit different,” Allianz Global Investors GmbH portfolio manager Kacper Brzezniak said in an interview. “You could see a situation where sterling rallies quite a lot on what seems very passive and soft Brexit tones from Theresa May, which then reverses. At that point you’d want to be short.”

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