Friday, 19 May 2017

Banks' data shows funds still happy to sell sterling

Sterling has gained strongly in the month since British Prime Minister Theresa May called a national election but reports from major banks this week show big speculative investors and firms still tend to sell the currency whenever it blips higher.

May's surprise decision to hold an election on June 8 drove a squeeze that, according to U.S. futures market data, has now halved net speculative bets against the pound, including the third biggest shift in its favour on record last week. 

But the numbers compiled each week by three of the currency world's biggest banking players - UBS, Citi and Deutsche Bank - paint a more nuanced picture that points again to concerns over Britain's long-term future and the fate of the pound as talks on the country's exit from the European Union get underway.

The Swiss bank's data goes further, showing that in net terms, the pound has been more sold than bought by leveraged speculative players over both the past week and the past four, with only the longer-term institutional investors who sold it aggressively last summer buying back in.

"Sterling was sold versus the dollar as all the client groups, except for asset managers, were net sellers," UBS analysts Maximillian Lin and Haojiang Zhao said in their latest report, sent to clients on Tuesday.

The pound has gained 4 percent since April 18 but has struggled to push past $1.30 and many strategists still tend to put its gains down to investors closing out bets against the pound rather than actively betting on it to rise further.


Deutsche Bank's data on non-commercial flows, which bundles leveraged funds and asset managers, showed the pound was minimally bought last week but far less than a week earlier.

The numbers from Citi, however, show that along with the dollar sterling was the most sold currency in the G10 group of major economies for its clients.

Citi also put leveraged funds as sellers of the pound last week. Over a four-week period, it said companies had been the biggest sellers of the British currency.

Corporate brokers say that company budgets have been battered by the almost 20 percent fall in the value of the pound against the dollar in the second half of last year. Many are still only just coming to terms with the new rates after existing hedges rolled off earlier this year.

Richard de Meo, formerly a senior banker for Barclays and now managing director of brokerage Foenix Partners in London, says that companies have been active in selling the pound in the higher $1.20s.

"I think a lot of people are now budgeted at $1.25-$1.27 so against the dollar these are good levels for people," he said.

"That said, there is a lot more confidence now. A lot of our biggest buyers of dollars are just waiting to see where it goes. They have put on protective trades with stop losses in the 1.20s ... betting on the pound to go higher."

Reference: Patrick Graham

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