Market Overview

British Pound Gains 1% Tuesday Morning, But Currency Investors Remain Bearish

British Pound Gains 1% Tuesday Morning, But Currency Investors Remain Bearish

The British pound was trading higher by more than 1 percent Tuesday morning at $1.3138 and has gained around 4 cents since bottoming at $1.2798 in days following the Brexit vote in late June.

The British pound hasn't traded at these levels since the 1980s.

Investors looking at the pound's near-term bounce and thinking value investors across the world are now attracted to U.K. assets should re-examine this thesis, at least according to the Wall Street Journal.

Hedging And Shorting

The Wall Street Journal stated that data from the U.S. Commodity Futures Trading Commission shows investors believe the British pound will continue falling to new multi-decade lows. In fact, the publication noted that several money managers have actually boosted their net short position in the first week of July — a full week after the Brexit vote.

Related Link: Has Invesco's Hedge Against The Pound Kept It Protected From Brext?

Asset managers now hold 81,896 more short contracts than long contracts on the British pound, marking the largest net short position since the end of March.

Hedge funds are also boosting their net short positions in the currency after holding a net long position in the final week of May.

Analysts at Deutsche Bank who are calling for a further 12 percent drop in the currency from now until the end of 2016 aren't the only experts calling for further declines in the pound.

A Broader Look

The Wall Street Journal cited Paul Meggyesi, a foreign exchange strategist at JPMorgan, who said in a research note that ongoing uncertainty in the country's politics and financial outlook isn't helping restore confidence among international investors that are looking to buy U.K. assets.

The analyst wrote that the country's uncertain outlook "is a key reason to suppose that (sterling) faces intermittent and potentially accelerated downwards pressure in coming months." He added that while the immediate collapse in the pound following the Brexit vote was "dramatic," it was "never likely to mark the low point."

The Guggenheim CurrencyShares British (NYSE: FXB) ETF is down more than 2 percent over the last five trading days, and down more than 8 percent over the last three months. At time of writing, the ETF was up a penny at $127.08.

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