Currency Speculators, Hedge Funds Placing Bullish Bets On Pound Sterling: FT

Despite recent fluctuations in sterling’s rally, currency speculators have increased their bullish bets on the pound to a nine-year high, Financial Times reports.

Speculators Bullish on Sterling

Speculative investors, including hedge funds, have shown increased optimism towards sterling, which has seen a 5% rise against the dollar since January. This is largely due to the Bank of England’s (BoE) efforts to increase borrowing costs to combat inflation.

Interest Rate Expectations

With the UK experiencing stubbornly high inflation compared to other economies, markets anticipate that the BoE will have to further increase interest rates. This expectation has pushed the two-year UK government bond yield to a 15-year high of 5.40%.

Impact of Rate Increases

Despite the typical correlation between higher rates and stronger currencies, the pound has fallen nearly 1% since the BoE unexpectedly raised interest rates to 5% on June 21. Some investors believe this indicates that aggressive rate rises could stifle growth and induce a recession.

Outlook for Sterling

While some analysts warn that a crowded bet on a stronger sterling could lead to a pullback, others argue that higher UK interest rates should continue to support the currency. Markets are currently pricing in multiple further rate rises to a peak of around 6.25% early next year.

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