The pound depreciated at 1.2698 (- 0.68%) against the dollar yesterday. While the negotiations on Brexit between the Theresa May government and the European Union are still stalled, with the “no deal” hypothesis that gets more and more probable every day, the issue linked to the Northern Irish border is catching on , with the loyalists who urged the Irish government to stop the “” British rejection “” on Brexit, launching the alarm on possible attacks in the case of “hard Brexit” that could severely test the ties between Northern Ireland and Dublin .
The Bank of England kept interest rates unchanged during its last monetary policy committee, after Governor Mark Carney was confirmed at the head of the central bank until the end of January 2020 to mitigate any potential negative fallout from Brexit.
The Federal Reserve raised US interest rates by +25 basis points during the FOMC meeting on September 26 and should again increase rates during the last FOMC of the year. After the latest macroeconomic data showing a good labor market, with the unemployment rate at 3.7%, the GDP growth rate rising by + 4.2% on a quarterly basis and the inflation towards the + threshold 3.0% on an annual basis, the Fed’s monetary position should become more aggressive. The latest COT Pound Report, published by the Chicago Mercantile Exchange referring to the Positions Futures as of October 23, shows how leveraged funds reduced their long and short positions on the GBPUSD and how dealers strongly increased their long positions.
The COT reports all long and short positions for each category of investors: dealers, asset / institutional managers and leveraged funds. In particular, leveraged funds include hedge funds, which represent the most tactical and dynamic investors, characterized by greater flexibility to move from long positions to short positions (and vice versa).
According to the COT data referring to the last week of trading, the leverage funds decreased to 29.021 their long positions for contracts of GBP 62.500 (-2.962) and also decreased to 38.563 their short positions (-1.192), with a spread of 8,960 (+2,757). The dealers strongly increased their long positions by +9.732 to 102.873 and increased their short positions by +2.454 to 29.838, with a spread of 2.011 (-449), suggesting that this category of investors is likely to strengthen pound against the dollar in the long run. Even the asset managers / institutions increased their long positions to 49,813 (+1,041) and increased their short positions to 90,494 (+4.997), with a spread of 2,715 (+6).