Investors are buying back into the pound's pizazz

Credit: REUTERS/NEIL HALL

By Amanda Cooper

LONDON, Feb 20 (Reuters) - The pound is playing catch-up with the dollar as investors beef up their bullish positions, and may get extra oomph from data this week showing British business activity is among the strongest in the developed world.

Monthly surveys of business activity this week are expected to show the UK topped the league table in February, well ahead of the euro zone and beating even the United States, which in the last year has been one of the few major countries not to have shown a dip into contraction.

This so-called "U.S. exceptionalism" has kept the dollar buoyant and investor confidence in a soft landing for the U.S. economy running high.

Economists polled by Reuters expect an index of British business activity to have risen to 52.7 in early February, led by a surge in service-sector activity to its fastest pace since last May.

Sterling is down just 0.9% against the dollar GBP=D3 so far in 2024, having clawed back up from a 1.5% year-to-date loss two weeks ago.

A lot has changed since then, not least Germany tilting into actual recession and France barely growing. Data last week showed the UK, too, registered two straight quarters of negative growth last year.

The euro has fallen to its weakest in six months against sterling EURGBP=D3, having lost around 2% in value against its cross-Channel rival since the start of the year.

For the past few months, investors have enjoyed the pound's higher yield that has derived from the view that, even though the economy is sluggish, persistent inflation will mean the Bank of England will have to keep interest rates higher for longer.

Weekly data from the Commodity Futures Trading Commission (CFTC) shows speculators lifted their bullish sterling position to $3.971 billion in the week to Feb 13, just shy of last July's nine-year high. GBPNETUSD=

Leveraged funds 1096742LNET, which include hedge funds and money managers, have aggressively added to their long sterling positions since early December, and now hold their largest bet on a pound rally since October.

Aside from the pound's yield appeal, investors may be taking heart finally from the data too.

JPMorgan nudged up its 2024 UK growth forecast in January, while Deutsche Bank last week said it had made a modest upward tweak to its quarterly growth estimates.

Bank of America has turned bullish on sterling and last week boosted its year-end target for the pound to $1.37 - some 8.5% above where it is trading right now.

In a note last week, ING issued a reminder not to "get carried away" by signs of green shoots in the economy - the BoE is focussed on services and wage inflation right now - but acknowledged that the outlook for Britain's economy is starting to brighten.

Global business activity on recovery path https://reut.rs/49b2dA2

Retail sales in UK jump in January https://reut.rs/49iARrG

British wage growth holds up https://reut.rs/3TduZL3

(Editing by Alun John and Christina Fincher)

((amanda.cooper@thomsonreuters.com; +442031978531; Twitter: https://twitter.com/a_coops1;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Tags

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.