U.S. Markets closed

Hedge funds make £7bn bet against pound as Brexit bites

by RUSSELL LYNCH

The pound came under more pressure on Monday as no-deal Brexit fears returned to stalk markets and figures revealed a $7.6 billion (£6.9 billion) bet against the beleaguered currency.

Sterling had been crawling back from 34-year lows of $1.2015 against the dollar a week ago.

But the recovery was stopped in its tracks amid heightened tensions over an EU crash-out following the leak of Operation Yellowhammer documents setting out the possible impact of no-deal.

Sterling was down 0.22 cents at $1.2127 and 0.33 cents to €1.0932 against the euro.

US figures also showed hedge funds and asset managers keeping their short position against the pound — the worst performing major currency this year — at elevated levels.

Bets against the currency stood at $7.6 billion as of last week, close to the previous week’s all-time high of $8.1 billion.

The currency tensions come as PM Boris Johnson— committed to a “do or die” Brexit on October 31 — is set to hold talks with French President Emmanuel Macron and German Chancellor Angela Merkel in a doomed-looking bid to get a new deal a matter of weeks before the deadline.

Nomura’s currency analyst Jordan Rochester said talk of parliamentary plans to prevent no-deal had given a short-term fillip to the currency, but warned of the impact of a turbulent September on the pound amid a likely no-confidence vote.

“There is little positive light at the end of the tunnel and sterling short positions are likely to remain entrenched for some time to come,” he said.

Financial markets predict a rate cut and Bank of England policymakers including Silvana Tenreyro and Gertjan Vlieghe have said rates are likely to fall in response to a no-deal.

But CMC Market analyst Michael Hewson said currency markets were at “peak negativity” on the pound: “The question is, how much more bad news can be priced in? The short position could come back to bite people.”

As sterling fell, CBI director general Carolyn Fairburn said she would be travelling all over the UK to hear from businesses about “their preparations for a no-deal Brexit and the impact on their business”. The leaked Yellowhammer documents suggest businesses are largely unprepared for no-deal due to a lack of certainty and “EU exit fatigue”.