Stretched Bets Against GBP Leave Room For Rebound

Goldman Sachs believes there's room for a British Pound recovery due to stretched bearish positioning. According to the bank, investors betting against the pound could drive its next rebound if disappointing US data prompts them to reverse those positions.

The bank's analysis found that Sterling and the Euro are in 'stretched-short territory', making both currencies vulnerable to a rebound over several weeks. Goldman measures speculative futures positions using its Sentiment Index, which runs from zero to 100. A reading below 10 indicates positioning close to the bearish end of the historical range.

The bank found that both GBP and EUR were below this threshold in the data used for the report. It also notes that weak US jobs data could challenge Dollar demand and lead to a rebound in Sterling. The bank's research cautions against assuming every payroll miss produces a large currency reversal, however.