About Us  |   Contact Us  |   Register  | Login  |   

Follow HedgeWorld on Twitter HedgeWorld on LinkedIn






HEDGEWORLD NEWS
Search the News
Advanced News Search
HedgeWorld News by Region
United States / Americas
Europe
Asia / Australia
International
HedgeWorld News Sections
Managed Futures & Derivatives
Daily News
Regulatory/Legal
Strategies/Analysis
Technology
Opinion
People
Indexes
Other News Features
Most Popular
LexisNexis Headlines
Reuters Headlines
The HedgeWorld Blog
Alternative Advantage Daily Newsletter
RSS Service
Sign Up For Email News Alerts
Reprints



FX COLUMN-Rate hike timing blurs but won't stop pound's sterling run
06/25/2014 Email this story  |  Printable Version

-- 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 investments.

SUKUK

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 investors.

UK Prime Minister David Cameron has been keen to position London, with its many wealthy Islamic investors, as a hub for Islamic finance.

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)


Email This Story to a Friend   |   Display Printable Version of This Story

Story Copyright © 1999-2014 Reuters HedgeWorld All rights reserved.

HedgeWorld News is sponsored by:






Lipper    Privacy   User Policy  Legal Disclosure Copyright/DMCA  Site Map    FAQ    Glossary  Thomson Reuters for Hedge Funds
All rights reserved. Users may download and print extracts of content from this website for their own personal and non-commercial use only. Republication or redistribution of HedgeWorld content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. HedgeWorld is a registered trademark of Thomson Reuters.