June 3, 2019 / 3:39 PM / 2 months ago

UPDATE 1-Hedge funds raise negative sterling bets as Trump wades into Brexit debate

* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv (Updates prices)

By Abhinav Ramnarayan

LONDON, June 3 (Reuters) - Hedge funds have stepped up their negative bets on sterling as U.S. President Donald Trump backed hardline British politicians Boris Johnson and Nigel Farage ahead of Britain’s planned withdrawal from the European Union.

The current British premier Theresa May has announced she is quitting, triggering a contest that will bring a new leader to power, with most of the frontrunners expected to push for a decisive break with the European Union.

Boris Johnson, frontrunner to succeed May, launched his campaign with a promise to lead Britain out of the EU on Oct. 31 with or without an exit deal

Sterling stayed off off five-month lows on Monday, though it gave up modest earlier gains to stay flat on the day and hover around $1.2637. Against the euro it fell 0.3% to 88.66 pence, just a whisker off 4-1/2-month lows.

Data from the U.S. Commodity Futures Trading Commissions showed short sterling positions are slowly building up in the background, reflecting uncertainty among investors on Britain’s economic outlook.

Short positions are at their highest level since March 17.

“We now have 13 Tory politicians standing for leadership, and Boris Johnson in particular is attempting to hammer in his popularity; aided a little by Donald Trump who is talking up Farage and Johnson,” said Rabobank FX strategist Jane Foley.

Trump arrived in Britain on Monday for a state visit, with his interventions on Brexit, May’s successor and a row over China’s Huawei set to overshadow the pomp and a banquet with Queen Elizabeth.

Adding to bearish sentiment, a survey showed on Monday that the Brexit stockpiling boom of early 2019 gave way last month to the steepest downturn in British manufacturing in almost three years. New orders dried up, the data showed, boding poorly for economic growth in the second quarter.

But with political headlines dominating proceedings, this had little immediate impact on sterling, which remained higher on the day after the release of the data.

Sterling has endured four straight weeks of losses, hit by concerns that Britain will crash out of the EU on Oct. 31 without a trade deal in place.

Those concerns were reinforced on Monday when French President Emmanuel Macron said Oct. 31 would be the final deadline for Brexit. (Reporting by Abhinav Ramnarayan Editing by Keith Weir and Deepa Babingotn)

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