Traders build biggest bets against the pound since the Brexit vote

Currency traders have built their most negative position against the pound since the 2016 Brexit referendum, official US figures show. More than £6.5bn is now wagered on sterling falling — a near-decade high — after the Bank of England left interest rates at 3.75% for the sixth meeting in a row while both the Federal Reserve and the European Central Bank raised rates this month.

A £6.5bn wager, a decade in the making

CFTC figures show speculators are running the longest streak of sell orders against sterling since the Brexit vote, with more than £6.5 billion now bet against the currency — a near-decade high.

The latest Commitments of Traders snapshot has speculative accounts net short 82,568 pound contracts, deepening by 23,853 contracts in a single week, as sterling slid 1.10% over that week.

The currency has fallen by more than 1 per cent against the dollar this year to around $1.32, and one widely read forecast desk had it at $1.3250 — a 12-week low — after slipping from near $1.3540 earlier in the month.

The policy gap the market can see

Six days earlier, the European Central Bank had raised its deposit rate by a quarter point to 2.50% — its second increase of 2026, after a June hike and a July pause.

The Federal Reserve raised its target range by a quarter point on September 16 to 3.75% to 4.00% — its first increase since July 2023, passed in a unanimous 12-0 vote.

The Bank of England, meanwhile, kept its main rate at 3.75% on September 17 — its sixth consecutive hold, and the lowest level since December 2022 — even as its own forecast says inflation is likely to rise above 4% early next year.

The vote split 6-3, with Catherine Mann, Megan Greene and Huw Pill backing an immediate increase to 4%.

Governor Andrew Bailey warned that "the longer these disruptions last, the greater their impact on inflation, and the more likely it is that we will need to raise Bank Rate to ensure inflation returns to our 2% target."

The logic is simple enough: higher rates make a currency's fixed-income assets more attractive to foreign capital. When the Fed and the ECB are both tightening and Threadneedle Street is standing still, the yield gap turns against sterling — and the CFTC data are the market saying that out loud.

The fiscal shadow: gilts near 19-year highs

UK government bond yields have traded close to a 19-year high for most of the past month, as investors demand a risk premium to hold UK debt ahead of next month's budget.

Britain has borrowed £77 billion so far this financial year — £8 billion more than official forecasts — and the interest bill on the national debt set an August record.

The budget on October 28 is where that pressure lands. Speculation about tax rises has been gathering as the government's fiscal headroom erodes, and sterling offers little cushion when higher yields reflect borrowing strain rather than growth.

The twist: traders expect the hikes they're betting against

Here is the wrinkle in the record short: the same market betting against the pound is betting the Bank will have to hike. Money markets expect the Bank to lift rates as many as four times over the next 12 months.

Barclays now expects quarter-point increases in November and February, while Goldman Sachs sees a November move possible if the data stay firm — putting the next MPC meeting on November 5 at the center of the trade.

That is why a crowded short cuts both ways. If the November meeting starts to look like a hike — or soft US data weakens the dollar — cutting those bets means buying pounds, and the forced covering can amplify the rebound.

Sterling's misery has not infected every UK asset. The FTSE 100 has risen more than 7% this year, helped by energy stocks riding higher oil prices since the war involving Iran began in late February, and the OECD has raised its UK growth forecast to 1.1%.

The next CFTC count, due Friday, will show whether the record bet keeps growing. Watch the October 28 budget and the November 5 MPC decision — the two events most likely to make this trade look brilliant, or expensive.