Traders rediscover their taste for sterling, CFTC data shows
The British pound may have started October on the lower side, but traders seem to have had a change of heart lately when it comes to the British currency, data from the Commodity Futures Trading Commission showed.
On Sept. 26, net futures trader positions in sterling turned positive for the first time since November 2015, meaning long positions outweighed short positions for the first time in almost two years, the data showed.
The pound GBPUSD, -0.2636% has fallen from the year-to-date high of $1.359 against the U.S. dollar that it reached in mid-September, and since then speculative demand has grown.
Sterling initially rallied on the back of a more hawkish-sounding Bank of England. Most notably, in mid-September BOE Gov. Mark Carney said that interest rates could rise faster than the market expected.
Since then it pulled back, hitting a low of $1.3276 on Monday.
In fact, the pound was one of the worst performers on this first trading day of the year’s final quarter, sliding both against the dollar and the euro EURGBP, +0.0339%but according to market participants, this might just make it a more attractive buy.
Earlier Monday, the U.K. manufacturing purchasing managers’ index for September came in at 55.9, down from 56.7 in August. This highlighted “the cooling in the economy at the end of [the third quarter],” said Kathleen Brooks, research director at City Index.
“We expect the rest of the surveys to also show signs of moderation as the U.K. economy enters a period of slow cooling rather than falling off a cliff,” she continued.
Sentiment shifting this abruptly around the currency could be considered a contrarian sign and cause some weakness in trading, according to Brooks. “We believe that a further decline towards $1.3020 — the 38.2% retracement of the January-low to September-high — could be met with buying interest.”
At the same time, certain risks continue to loom over the U.K., including Brexit negotiations and the uncertain outcome for trade, as well as the internal woes of Prime Minister Theresa May’s Conservative Party.
The Tories, as the conservatives are also known, are holding their party conference this week, and traders are following it cautiously. In May’s speech at last year’s summit, she stressed the need for a hard Brexit, sending the pound plunging.
This year, her speech should be more muted, given how Brexit talks already seem to be gridlocked, Brooks said.
“However, it is worth remembering that Theresa May can be toxic for the pound, and its fall was accelerated after her Florence speech last month. That and the fact that September PMI’s between the U.K. and European highlight the U.K.’s economic vulnerability, suggest it could be a tough start to the month for the pound,” said Brooks.