Hedge funds have made their biggest bearish bet on the pound before UK data due this week that is to show the early effects of the nation’s decision to leave the EU.
The pound reached a one-month low yesterday ahead of reports on inflation, retail sales and unemployment benefit claims for last month, which would provide more detail on how the economy is faring after the June 23 referendum.
The pound had its worst day on record after the UK voted to leave the EU, while losses deepened this month following the Bank of England’s (BOE) decision to cut interest rates and boost its stimulus plan.
The pound fell to as low as US$1.2901 against the US dollar, a level unseen since July 11, before trading at US$1.2929 as of 6:51am in London yesterday, 0.1 percent higher than last week’s close.
It reached a three-decade low of US$1.2798 on July 6 in the wake of the referendum result.
The pound’s 12 percent slump this year makes it the worst performer among 31 major currencies against the US dollar.
“The pound has broken through some key psychological and technical support levels,” IG Ltd Melbourne-based market analyst Angus Nicholson said.
“If, as expected, we see further evidence of the UK heading into technical recession, it’s difficult to think of any scenario other than further BOE easing,” he added.
Hedge funds and other large speculators raised net bearish wagers on the pound to 90,082 contracts in the week to Tuesday last week, the most in Commodity Futures Trading Commission data since 1992.
The pound rose 0.1 percent to ￡0.8633 per euro from Friday, when it set a new post-Brexit low of ￡0.8653, a level unseen since August 2013.
While surveys since June 23 have shown contractions in construction, manufacturing and services, this week’s figures are to provide more concrete evidence of the vote’s impact on the UK’s economy.
The data are forecast by economists to show jobless claims increased last month while retail sales barely grew.
The BOE on Aug. 4 cut interest rates to a record low and restarted its quantitative easing program, spurring a 3 percent slide in the pound against the US dollar.
“The UK’s deteriorating economic outlook is reinforcing expectations of more BOE policy easing, which will continue to weigh on the pound,” Commonwealth Bank of Australia foreign-exchange strategist Elias Haddad wrote in a note to clients.
“Given the deterioration in business and consumer sentiment, UK retail sales risk underwhelming,” he added.
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