BBH Global Currency Strategy Team notes that Sterling's gains do not appear to reflect fundamental developments, adding that such gain appear to be driven by two considerations.
Key Quotes
First is the money management of momentum traders. Once sterling stopped falling, short-term participants (fast money) bought it back to take profits on short positions. Remember, in the futures market; speculators were carrying one of the largest bearish bets on sterling on record (gross shorts of 93.7k contracts, each contract worth GBP65000). Second, institutional investors are adjusting portfolios and (currency) hedges ahead of the month- and quarter-end.
It is important to recognize the high degree of uncertainty that remains in place. This will likely keep many institutional portfolio managers on the sidelines. They do not have to be in a hurry. It is true that over the past five sessions, the FTSE 100 is the only major European market that is higher (~1.0%). This is in local currency terms. In dollar terms, the 6.7% slide is a little more than the region's large markets, including the DAX, CAC, and Dow Jones Stoxx 600. The same is true when returns are calculated in euro and yen.
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