(Repeats story issued on Friday)
* Sterling up 5 percent in November after 4-month fall
* Court case may affect perception of hard or soft Brexit
* Market positioning carries risk of short squeeze
By Patrick Graham and Jamie McGeever
LONDON, Dec 4 It has been a difficult week for
investors betting against sterling on worries about the shape of
Britain's exit from the European Union. And next week's Supreme
Court hearing on parliament's role in proceedings may only make
In the space of a few hours on Thursday, the pound surged to
its highest in almost three months against the euro
and its highest in two against the dollar.
Brexit Minister David Davis was the trigger, hinting for the
first time that the government could contribute to the EU budget
in exchange for retaining more privileges in the bloc's single
That was not a commitment to stay inside the single market,
but it sounded like the sort of concession that might lead
London to a compromise less damaging to its banks, businesses
and economy than some investors had feared.
It followed a month when domestic politics and economics
have played steadily in favour of the pound, and the focus on
events in the United States and on global fixed income markets
has turned speculators' eyes elsewhere.
Sterling's value against a basket of currencies rose 5
percent in November, its biggest monthly rise since January 2009
and second biggest in more than three decades. It remains
15 percent down since this time last year.
The government also suffered defeat in a contest for a
vacant parliamentary seat on Thursday which felt like an
anti-Brexit vote. And the court case will allow its opponents to
make the case again for their right to influence perceived
hardliners like Davis.
With short positioning in sterling still close to record
lows and the proximity of year-end accounting,
some of those who bet in July and August on depreciation seem to
have cashed in and walked away.
"For the first time in weeks, domestic issues are driving
sterling," said Jordan Rochester, G10 currency strategist at
Nomura in London. "I expect a lot of noise, and because market
positioning is still very short, the risks are always for a
potential squeeze to the upside."
HARD OR SOFT?
The court has said a decision is unlikely to come until
after the New Year. But the live broadcast of the hearings -
unusual in Britain's legal system - may see more political
The initial ruling a month ago, against which the government
is appealing, said it needed to allow parliament a vote before
launching its divorce from the EU by triggering Article 50 of
the Lisbon Treaty.
That sent sterling 1.5 percent higher and offered hope to
those arguing for a "soft Brexit" that prioritises a close
economic relationship with Europe over tighter controls on
"What the market liked about the ruling was that in one
sense it raised the probability of delay," said Barclays
strategist Hamish Pepper. "With a longer period of time to
consider a policy and a negotiating stance, you might end up
with something that has a greater chance of being successful."
If the government loses again, it will have to secure some
form of parliamentary approval to trigger Article 50.
This could be achieved through a substantive motion - a
proposal put forward for debate and a vote - which would take
little time. However, the claimants say there needs to be new
primary legislation that passes through both parliamentary
chambers, a far more complicated process.
That could make it hard for Prime Minister Theresa May to
meet her target of invoking Article 50 by the end of March.
Yet some analysts argue the ruling has broader consequences
than just the timetable.
"The market appears to be leaning towards the government's
appeal not being upheld, and therefore (triggering) Article 50
means (seeking) parliamentary approval," said HSBC strategist
Dominic Bunning. "That means a softer Brexit."
The pound fell from $1.50 to $1.30 in the three months after
the vote in June. Only the last leg of the fall, since the prime
minister delivered a speech in October that was interpreted as
pointing towards "hard Brexit", has been driven by speculation
on the likely terms of the departure.
That points to a return from current levels around $1.2680,
first to key resistance around $1.28 and then higher if a "soft
Brexit" looks increasingly likely.
"Sterling itself is undervalued," said James Kwok, head of
currencies for asset manager Amundi.
"It should be trading about $1.30. It is trading lower
because of all the uncertainty. But for us the best way is not
to bet on cable (dollar rates), but to bet against the euro."
(Writing by Patrick Graham; Editing by Mark Trevelyan)