-- Neal Kimberley is an FX market analyst for Reuters. The
opinions expressed are his own --
By Neal Kimberley
LONDON, June 25 (Reuters) - The precise timing of a Bank of
England interest rate hike may be a little less clear after
Governor Mark Carney's remarks on Tuesday, but there are still
plenty of reasons to bet a strong pound will rise further.
In testimony before a parliamentary committee, Carney
appeared to push back slightly against expectations rates would
rise before the end of the year. Inevitably, that led to talk of
bets on sterling being pared.
The foreign exchange market is already heavily positioned
for further sterling strength. Speculative net long sterling
positions are at their highest this year, up to 52,296 contracts
in the week ending June 17 from 35,842 in the previous week,
according to the latest CFTC data.
That was a remarkable turnaround from just over a year ago,
when speculators held net short positions of 53,687 contract.
With sterling's trade-weighted value at a
still-elevated 87.90, a level last seen in 2008, and positioning
skewed, a sell-off in the pound seems a logical outcome. But
that might be too obvious.
On Tuesday, Carney did not row back on comments he made on
June 12 when he signalled UK interest rates may rise sooner than
the market then expected.
For all that the BOE seeks to stress any future move is
data-dependent or state-contingent, the reality is that the
direction of travel for UK rates is up, even if the timeline is
as yet indistinct.
At the same time, Britain remains open for business.
U.S. pharmaceutical company AbbVie's $46 billion
pursuit of UK-listed Shire plc is ongoing
. If successful, it would likely entail the
purchase of a very material amount of sterling.
Canada's SNC-Lavalin Group Inc's 1.16 billion-pound
acquisition of the UK's Kentz Corp may be
smaller, but nevertheless will probably
necessitate demand for sterling.
Chinese Premier Li Keqiang's recent visit to Britain should
also generate substantive sterling-positive
Britain's 200 million-pound sukuk issue might not be very
large, but it is the first Islamic bond from a Western
government, and it sends a positive message to potential
UK Prime Minister David Cameron has been keen to position
London, with its many wealthy Islamic investors, as a hub for
Notably too, it was Qatar's QIPCO whose name was
prominent at Royal Ascot this year after Queen Elizabeth, for
the first time, gave permission for the flagship horse racing
event to be partnered by a commercial entity.
That may seem to be a specious argument to make with regard
to currency values. At a cultural level, though, it underscores
a broader international narrative that supports sterling.
It looks obvious to many that after its recent strong run,
sterling is overbought and is due a big correction. Sterling may
take a breather, but the notion that the pound's strong run is
over and done with seems just a bit too obvious to be true.
(Editing by Nigel Stephenson, Larry King)