‘Shorting the pound is a consensus trade . . . people are desperately trying to get into it in a larger size right now,’ said a London-based hedge fund manager managing several billion dollars of assets. ‘The hedge fund community is definitely piling into this trade today, the question it is divided on is how much of a spill over we are going to see from Brexit into other European markets.’
Most fund managers spoke to the Financial Times on the condition of anonymity because of the stigma attached to profiting on sterling’s sharp fall and recession expectations.
Alberto Gallo, a portfolio manager for the hedge fund Algebris, said sterling has now become the market’s main proxy for fears about the uncertainty of Brexit.
‘The pound clearly has a lot more to drop’ said Mr Gallo, who also questioned the ability of the Bank of England to support sterling if it needed to. ‘The Bank of England doesn’t have room to raise rates, and doesn’t have large reserves,’ he added.
Traders said hedge funds were starting to put on short positions against sterling using cash, rather than options, which have become increasingly expensive.
FT/ today 27 June 2016
[Quoted by King Pyrrhus of Epirus after the battle of Heraclea 280BC]