On July 24th, market analyst Gary Howes wrote that according to the latest data showing how global investors view currencies, investors' optimism towards the pound has reached a record level.

GBP long position hits new high, facing pullback risk

Weekly data from the Commodity Futures Trading Commission (CFTC) shows that the 'long' position in the pound has risen to 183000 contracts. Jane Foley, senior foreign exchange strategist at Rabobank, said, "The net long position in the pound has increased significantly for the third consecutive week

Elsa Lignos, Global Head of Capital Markets Foreign Exchange Strategy at Royal Bank of Canada, said, "The long position in the pound increased by 48000, reaching a historic high of 133000

The pound is the top ten performing currencies in 2024, surpassing the US dollar to take the crown in July.

The combined effect of several different factors - the overwhelming victory of the Labour Party, the cautious attitude of the Bank of England towards interest rate cuts, and political uncertainty elsewhere - is driving positive sentiment towards the pound, "said Nigel Green, CEO of DeVere Group

Market analyst Gary Howes said that the position of the pound may become tight, which means there is a risk of a significant pullback in the pound in the near future, especially if data or the Bank of England's interest rate decision on August 1st proves that it does not support the pound.

Foley said, "Although we still believe that the pound can continue to receive support, we see this as a less direct prediction due to the market holding long positions in the pound. This position suggests that the pound may become more sensitive to disappointing news or dovish comments from the Bank of England, indicating that volatility will further expand

Institutions still optimistic about the prospects of the pound

Although the position appears somewhat tight by historical standards and increases the risk of a recent downward correction, this does not necessarily mean that the overall upward trend of the pound for several months is at risk.

More and more investors may flock in, further driving up the value of the pound in the short term, "said Nigel Green, CEO of DeVere Group

DeVere expects the pound to reach 1.40 against the US dollar by March 2025.

JPMorgan warned this week that record breaking bets pose short-term risks to the pound, but it still predicts that the pound will reach 1.35 against the dollar by March next year.

Andreas Koenig, head of Amundi SA, Europe's largest asset management company, said that the pound may still be undervalued as investors have reduced their investments in the UK after Brexit. Any pullback will be an opportunity to increase GBP/USD and EUR holdings, especially as the Bank of England begins to cut interest rates.

Amundi SA has been increasing its holdings of the pound in recent months and expects the pound to further rise after hitting a one-year high. The company's global foreign exchange manager Andreas Koenig aims to reach a high of 1.35 GBP/USD by the end of the year.

Daily chart of GBP/USD