Traders Most Bullish on Pound Sterling Since 2014

Data showing how traders in global foreign exchange markets are betting confirm an ongoing shift in opinion towards Pound Sterling with sentiment at its most positive since July 2014.

Data from the Commodity Futures Trading Commission - the largest report of its kind and the best insight into how market participants are betting - shows traders have added exposure to the British Pound with the view that it was likely to extend higher.

The CFTC's latest Commitments of Traders report shows the value of contracts that are "long" on the Pound stand at $3.0bn. Being "long" is trader parlance for betting on a rise in a particular asset. Data shows there is now a 34k net long position, which represents a fresh multi-year high at levels last seen in July 2014.

"Longs jumped nearly 50% last week to 34,176 contracts, highest since July 2014, highlighting bullish sentiment," says Kenneth Broux with Société Générale. Back in 2014 the Pound charged higher against both the Euro and Dollar, with the Pound-to-Euro exchange rate hitting an high at 1.2873 and the Pound-to-Dollar exchange rate peaking at 1.7191.

The CFTC report does have a time lag and the most recent edition covers the state of the markets in the week ending March 27. This is nevertheless useful as the boost in optimism towards Sterling reflected in the report coincides with the striking of a transitional Brexit agreement between the European Union and the United Kingdom, something many traders believe is necessary for a stronger Sterling as the agreement minimises the risk of a disruptive Brexit occurring.

"We remain constructive on the longer run outlook for the GBP," says Shaun Osborne with Scotiabank in Toronto. "Cable has slid nearly 150 pips from the overnight high and while losses are significant, they do not qualify as a technical reversal (it is a marginal call but the signal is not there) and the broader uptrend remains intact."

The Pound did fall at the end of March but it has been a strong start to the new year for the UK currency amidst the shift in sentiment towards the UK currency.

"We reiterate our bias to buy on dips around 1.40 -1.4030 levels on firmer signs of material progress with Brexit negotiations," says Saktiandi Supaat with MayBank in Singapore who maintains a “more optimistic” outlook than current consensus for GBP on the back of an expectation for an orderly Brexit, continued improvement in labour market and potentially greater tolerance for GBP appreciation.

"That said we do not expect a one way trade and still see a great deal of variability on GBP exchange rate, driven by headlines on Brexit progress (which can be improvement or deterioration)," says Supaat.

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