European Stock Markets
Some of the world’s biggest investors are betting on a sustained
recovery in the pound, confident that Britain will avoid a disorderly
crash out of the European Union and that the Bank of England will hike
interest rates more than previously expected.
Bets on the pound, built up over the last few months, mark a sharp reversal in sentiment towards the currency from even a few months ago. Then, the risk of a “hard Brexit” under which Britain retains no preferential access to the EU’s single market, and the weaker performance of the UK economy, dominated headlines.
Wagering on the pound to continue the slide that followed the June 2016 referendum vote to leave the EU proved painful for hedge funds last year. The currency’s rally in recent months has forced many to unwind such positions and others to buy into the recovery.
On Thursday, trade-weighted sterling shot to levels not seen since the days after the Brexit vote, while at more than $1.43 the pound is on track for its best month against the dollar since 2009.
BlackRock (BLK.N), the world’s biggest investment manager, has raised a long sterling position by five times over the past year, to around 2.5 percent of an $11.7 billion fund.
Investors such as State Street (STT.N) have also bought sterling in recent months.
The slump in the pound in 2016 came to symbolise the economic loss that many predict Britain’s departure from the EU will trigger. While exporters have benefited, Britons travelling abroad have seen their cash squeezed and UK inflation has topped 3 percent.
But many investors warn that uncertainty over the shape of Britain’s future relationship with the EU is making them cautious about the rally.
UBS Wealth Management lifted its three-month sterling/dollar forecast to $1.40 from $1.36 this week, while keeping the 12-month forecast at $1.36.
The pound has gained a fifth from a 2017 low below $1.20 last January but is still some way off a pre-Brexit-vote high of around $1.50.
Against the euro, perhaps a better barometer of Brexit-related risk, it strengthened this week below 87
Tepid British indicators point to an economy that is struggling despite a global boom, with the International Monetary Fund predicting 2018 growth of 1.5 percent, less than half the global rate.
Confidence remains high over the short-term, with futures data showing net long positions in the pound held by hedge funds and other speculators at a 3-1/2 year high. But longer-term investors such as central banks have barely budged, retaining a more cautious view.
Bets on the pound, built up over the last few months, mark a sharp reversal in sentiment towards the currency from even a few months ago. Then, the risk of a “hard Brexit” under which Britain retains no preferential access to the EU’s single market, and the weaker performance of the UK economy, dominated headlines.
Wagering on the pound to continue the slide that followed the June 2016 referendum vote to leave the EU proved painful for hedge funds last year. The currency’s rally in recent months has forced many to unwind such positions and others to buy into the recovery.
On Thursday, trade-weighted sterling shot to levels not seen since the days after the Brexit vote, while at more than $1.43 the pound is on track for its best month against the dollar since 2009.
BlackRock (BLK.N), the world’s biggest investment manager, has raised a long sterling position by five times over the past year, to around 2.5 percent of an $11.7 billion fund.
Investors such as State Street (STT.N) have also bought sterling in recent months.
The slump in the pound in 2016 came to symbolise the economic loss that many predict Britain’s departure from the EU will trigger. While exporters have benefited, Britons travelling abroad have seen their cash squeezed and UK inflation has topped 3 percent.
But many investors warn that uncertainty over the shape of Britain’s future relationship with the EU is making them cautious about the rally.
UBS Wealth Management lifted its three-month sterling/dollar forecast to $1.40 from $1.36 this week, while keeping the 12-month forecast at $1.36.
The pound’s performance also reflects a broad sell-off in the dollar, now languishing at a three-year low against the euro, rather than improvements in Britain’s prospects alone.
The pound has gained a fifth from a 2017 low below $1.20 last January but is still some way off a pre-Brexit-vote high of around $1.50.
Against the euro, perhaps a better barometer of Brexit-related risk, it strengthened this week below 87
Tepid British indicators point to an economy that is struggling despite a global boom, with the International Monetary Fund predicting 2018 growth of 1.5 percent, less than half the global rate.
Confidence remains high over the short-term, with futures data showing net long positions in the pound held by hedge funds and other speculators at a 3-1/2 year high. But longer-term investors such as central banks have barely budged, retaining a more cautious view.
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