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Speculative investors have boosted 'long' exposure to the British
Pound by a further 58,063 contracts, according to 🍌 positioning data from the CFTC.
The
latest weekly snapshot of FX investor positioning revealed the net GBP long position
rose to 🍌 58,063 contracts, its highest since November 2007, in the week ended July
11.
This "equates to aR$4.7 billion bet on a 🍌 stronger pound," according to Robert
Howard, a foreign exchange market analyst at Reuters.
"Sterling is currently all the
rage among dedicated 🍌 followers of foreign exchange fashion, less than a year after the
disastrously received "autumn collection by Trussonomics" sent it to 🍌 a historic low,"
he says.
The Pound-Dollar exchange rate last week reached its highest level in 14
months after peaking at 🍌 1.31, the Pound-Euro exchange rate peaked at 1.1759.
Both
currency pairs have retraced somewhat with investors displaying caution ahead of the
🍌 midweek release of UK inflation data, a pivotal reading that should determine the
likelihood of another 50 basis point rate 🍌 hike at the Bank of England in August.
"This
was the largest, single currency positioning shift over the week. The improvement 🍌 in
GBP sentiment takes bullish positioning among non-commercial traders to a new high,"
says Shaun Osborne, Chief FX Strategist at 🍌 Scotiabank.
In mid-June, before the Bank of
England unveiled the first of its "summer season" rate rises, the net GBP long 🍌 stood at
a relatively modest 6,735 contracts. The bet has steadily grown since the Bank of
England adopted a more 🍌 assertive approach in fighting inflation by dropping 'dovish'
guidance and surprising with a 50 basis point hike in June.
"Further upside 🍌 data
surprises have prompted a sharp re-pricing in GBP rates, as markets contemplate even
more restrictive policy settings as necessary; 🍌 2y gilt yields have risen ~110bp since
the beginning of June. The GBP has risen in response," says Parisha Saimbi, 🍌 G10 FX
Strategist at BNP Paribas in London.
Should UK inflation print in line with
expectations this week (8.1% year-on-year), or 🍌 exceed expectations, UK bond yields will
likely firm as investors raise bets for a 50bp hike in August, in turn 🍌 offering GBP
support.
"Sterling bulls hope the second hike offering from the BoE's summer
collection, due on Aug. 3, is as 🍌 well-received by the FX market as the first," says
Howard.
The rise in the Pound-Dollar exchange rate was meanwhile largely a 🍌 function of
Sterling outperformance in a widespread USD selloff linked to two key U.S. inflation
readings that revealed the U.S. 🍌 is seeing disinflationary pressures take hold.
This
lowers the odds of future Federal Reserve rate hikes while also raising the odds 🍌 of
cuts, in turn weighing on U.S. bond yields and boosting equity markets which are
textbook negatives for the USD.
