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RationalFX : Positive sentiment continues to prop up Sterling

RationalFX : Investors have ramped up bets for further gains on Sterling, with the net long position of the pound increasing to the highest level since April 2018.

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This increase in the net long position is a reflection of the optimism that currently surrounds the UK thanks to the rapid roll-out of the vaccine program that has been the main contribution for the pound being the best performing currency of 2021.

However, such news can actually signal that a reversal is on the horizon. In April 2018 when we last saw this level, we saw highs against the majors which was followed by a run of four months of successive declines. Unlike then, we don’t have Brexit uncertainty as the trigger for such weakness so it is more likely that if this does happen, it won’t be UK specific.

Despite this, many still expect renewed pound strength thanks to the shift in fortunes that we’ve seen over the last few months. The completion of the EU-UK trade deal was the first big sign and we now have the vaccine roll-out to thank for this continuing. Both have been the main reason why investors no longer expect further interest rate cuts and have seen a bout of positive sentiment.

Economic calendar

10:00- EUR: Gross Domestic Product s.a. (QoQ) (Q4); expected to remain at -0.6%

10:00- EUR: Gross Domestic Product s.a. (YoY) (Q4); expected to remain at -5%

Source : ETFWorld.co.uk

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