Traders Staying Short on the pound, a Year After Brexit

After sliding 15 percent, the pound’s performance is the worst among major currencies versus the dollar over the past year. While equities have basked in the global stock euphoria -- with a helping hand from the weaker sterling -- further gains this year are seen capped near current levels. And Brexit negotiations just started this week.

As a weakened government embarks on divorce talks set to last until 2019 at least, a survey by Barclays Plc showed investors rank the Brexit discussions second only to Italy’s political risk as the biggest threat to markets arising from Europe. Robeco Nederland BV turned short on the pound after a bungled election campaign by Prime Minister Theresa May resulted in a hung parliament and a surge of support for Labour leader Jeremy Corbyn.

Since the Brexit vote, the FTSE 100 Index’s fortunes have waxed and waned in inverse relation to the pound. In local-currency terms, the exporter-heavy benchmark surged 17 percent in the year that followed, but in dollar terms, it hovers near levels seen just before the referendum results. The gauge is projected to end the year at 7,500, implying a gain of just about 0.7 percent from Wednesday’s close, according to the average of strategist forecasts compiled by Bloomberg.

The pound dropped to a three-decade low in the aftermath of the referendum and lost more ground in a mysterious “flash crash” in October. Analysts in a Bloomberg currency survey forecast the currency to end 2017 at $1.27 and 88 pence per euro, not far from current levels. In the meantime, however, given that “sterling’s sensitivity to headline news will increase even further,” strategists at UniCredit Bank AG recommend “booking profits in EUR-GBP longs for now and staying on the sidelines.”

Source: Bloomberg

Jr Trader Petar Milanov

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