Hedge Funds Caught Short When Brexit Talks Surprise

www.oann.com | 11/14/2017 | Staff
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LONDON (Reuters) – British Brexit minister Dominic Raab’s “thumbs up” after a cabinet meeting on talks with the European Union was all sterling needed to jump nearly half a percent last Tuesday.

A story buried on the 14th page of the Times newspaper at the start of November about Britain and the EU sealing a deal on financial services sent the pound to its biggest one-day rise since mid-2017, despite repeated denials from both sides.

Negotiations - London - Brussels - Divorce - Agreement

With negotiations between London and Brussels for a divorce agreement entering the final stretch, hedge funds have such large bearish bets on sterling that sudden positive news – no matter how incremental – is having a dramatic impact on the currency.

That means that big jumps in sterling may reflect investor positions rather than outright confidence of a deal. It also means that the pound has the potential to rally hard if an agreement is confirmed.

Glimmer - News - Pound - News - Cable

“A little glimmer of good news and the pound shoots up. You get some pretty substantial bad news and cable (the pound versus the U.S. dollar) doesn’t really move,” said Neil Jones, head of hedge fund sales at Mizuho bank.

Since its dramatic drop after the Brexit referendum in June 2016, sterling has become the principal gauge of sentiment in financial markets toward Brexit ahead of the departure date in March.

Week - Nov - Hedge - Funds - Bets

In the week ending Nov. 9, hedge funds hiked their bets against the pound by more than $800 million, bringing the outstanding net short position in sterling against the dollar to $4.65 billion , Commodity Futures Trading Commission data shows.

That is down from a 2018 peak of $6.5 billion hit in late September – the highest since May 2017 – but still a sizeable amount, according to the data, which captures a small part of overall investor positions in an opaque market.

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