Pound Strongest Since ’08 Luring Bulls Like No Other: Currencies

http://www.bloomberg.com/news/2014-06-23/pound-strongest-since-08-luring-bulls-like-no-other-currencies.html

Britain’s pound is the most coveted currency among traders, who are betting a rally that pushed it to the strongest level since 2008 is just getting started.

Hedge funds and other large speculators are more bullish on sterling than any other major currency, according to JPMorgan Chase & Co. analysis of data from the Commodity Futures Trading Commission inWashington. The pound climbed above $1.70 last week for the first time since August 2009 as the Bank of England hinted it may raise interest rates sooner than traders expect. Strategists from Commerzbank AG to Wells Fargo & Co. boosted their forecasts in anticipation of further gains.

World Cup

The pound surged 1.6 percent versus the dollar this month, the best performer among 16 major currencies tracked by Bloomberg after the New Zealand dollar’s 2.7 percent gain, as the prospect of higher bond yields boosted its allure. Sterling rose to $1.7063 on June 19, the strongest level since October 2008, and traded at $1.7016 at 11:03 a.m. in London.

“The U.K. looks like it will be the first major central bank to raise,” Mark Haefele, the global chief investment officer at UBS AG, said in a Bloomberg Television interview on June 20. Britain “won theWorld Cup in economic policy coming out of the crisis,” he said.

‘Positive Bias’

Higher bond yields because of rate-increase bets “should continue to impart a slightly positive bias” to sterling, Nick Bennenbroek, the New York-based head of currency strategy at Wells Fargo, said by phone on June 19.

The pound has climbed from a three-year low of $1.4814 on July 9, about a week after Carney took the helm of Britain’s central bank. It has appreciated 2.8 percent versus the dollar this year, extending a 6.5 percent gain from the start of 2012 to the end of 2013. It’s up 4.1 percent against the euro in 2014, and reached the strongest in more than 1 1/2 years of 79.59 pence on June 16.

The BOE chief was able to signal the start of the normalization in the key rate, which has been at 0.5 percent since March 2009, because of the strength of the U.K. recovery. Gross domestic productgrowth will outpace Britain’s Group of Seven peers this year, expanding 3 percent, according to median estimates of economists surveyed by Bloomberg.

Economic Recovery

As recently as May, Carney signaled he was prepared to wait until next year before raising rates. The effect of his change of tone has been all the more pronounced because the European Central Bank added to stimulus measures this month, while the Federal Reserve isn’t due to end its bond-purchase program until later this year.

The bets on pound appreciation are a bright spot in a generally flat foreign-exchange market, where the floods of cheap central-bank cash pumped around the world since the financial crisis have flattened out many of the trends traders exploit to make money. Deutsche Bank’s Currency Volatility Index fell to a record-low closing level of 5.34 percent on June 19, down from its high for the year of 8.52 percent in January.

In a market seeking trends, “positioning is more important than normal,” Kevin Hebner, a strategist at JPMorgan in London, said in a June 18 phone interview. “The pound is the clear outlier. Perception of central-bank policy and the divergence in that policy is clearly the big driver.”