Sentiment towards the British Pound continues to improve which suggests potential for further gains over coming weeks and months.
Last week again saw global currency market participants once again boost their 'long' exposure to the Pound - i.e. more traders are entering and holding trades that seek to benefit on an appreciation in the UK currency than there are entering and holding trades that seek to benefit on a decline.
Available weekly data on trader positioning at major institutions confirms an ongoing trend away from positioning for the Pound to fall into bets for the Pound to strengthen. The move suggests the market place reckons the worst could now finally be behind Sterling and the recent recovery might have further to run.
"In the week ended 16 January, leveraged funds increased GBP net longs from 30% to 39%, the highest level since the EU referendum. On the other hand, asset managers’ net short position in GBP was reduced from 40% to 33%," says Bilal Hafeez at Nomura.
Nomura point out that GBP long positioning has now risen to a post-Brexit high.
The findings at Nomura are echoed by those of French multi-national banking giant BNP Paribas who now report a moderate build up of long GBP positions. "FX funds appear to have cut back large GBP short positions," says Natalie Rickard, FX Strategist with BNP Paribas.
Meanwhile, sentiment towards the Euro remains easily the most optimistic with institutions across the board reporting Euro to be the most popular 'long' amongst investors.
"Leveraged funds’ net long positioning in EUR fell to 19% from a one-year high 26%. Asset managers also remained long EUR, with the current level (39%) broadly in line with the six-month average," says Nomura's Hafeez.
The Dollar is meanwhile the most popular 'short' as investors anticipate further weakness as the multi-month sell-off of the Greenback extends.
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