Speculation in the futures market that the pound will fall against the dollar increased in the last two weeks, with so- called net short positions rising to 34,462 on April 7 from 30,746 March 24, according to data from the Washington-based Commodity Futures Trading Commission.
The pound will fall to $1.45 and to 91 pence versus the euro by the end of the second quarter, according to the median estimates in Bloomberg surveys of at least 35 analysts.
Betting on pound gains is “definitely not a crowded trade,” said David Woo, global head of foreign-exchange strategy in London at Barclays Plc, who predicts the currency will strengthen to 80 pence per euro this year. “If you look at the data from the CFTC, the market still doesn’t have the position on sterling.”
Technical analysts, who use historic trading patters to predict future prices, suggest the pound will continue to advance. The currency has been trading above its 100-day moving average against the euro since April 7, the first time it broke through that level since Nov. 3, according to data compiled by Bloomberg.
Breaking Levels
“Euro-sterling has rammed through all of the technical levels,” said David Powell, a currency strategist in London at Merrill Lynch & Co. “Support was created by the 100-day moving average, but we’ve just gone right through there.”
Fibonacci charts show the pound may struggle to hold its gains unless it surpasses $1.5074. It almost reached that level three times since falling to a low of $1.3503 on Jan. 23.
Britain’s economy will shrink less than the U.S. and Europe this year, the Organization for Economic Cooperation and Development said on March 31. The U.K. will contract 3.7 percent, compared with 4.1 percent in the 16-nation euro-region and 4 percent in America, the Paris-based OECD said.
Brown’s government plans to sell at least 147.9 billion pounds ($195 billion) of debt in the fiscal year ending March 2010 to revive the economy, Europe’s second-largest. It sold an unprecedented 146.4 billion pounds of securities last year. The sales are helping finance a 25.6 billion-pound program of tax cuts and spending increases over the next two years. Brown has pledged 40 billion pounds to recapitalize banks and hundreds of billions of pounds in loan guarantees.
‘The Right Measures’
“On the financial sector, he’s put in place the right measures before any other country,” said Nick Kounis, an economist at Fortis Bank NV in Amsterdam and a former U.K. Treasury official. “Where he doesn’t rate highly is fiscal policy. The U.K. was in a very bad state when it entered the recession with a large deficit.”
Britain will have a deficit of 9.5 percent of gross domestic product in 2009, the most in the Group of Seven, according to the International Monetary Fund. The Washington- based lender forecast shortfalls of 7.7 percent in the U.S., 8.1 percent in Japan and 4 percent in Germany, according to estimates last month.
“History will reveal 2009/2010 as the time to buy cheap,” Neil Jones, the head of European hedge fund sales at Mizuho Corporate Bank in London said in a note yesterday. “We will look back on this era and say, ‘I should have loaded up on property, companies and stocks.’”
To contact the reporters on this story: Matthew Brown in London at
