US - Hedge funds went into the Bank of England's policy meeting that was the most positive on sterling since July, but many will have been burned by the Bank's surprise decision not to raise interest rates.
The Bank's 7 - 2 vote to keep its key lending rate on hold at 0.10%, convulsed UK markets, sent shockwaves through global markets, and has quickly gained notoriety as one of the most glaring examples of policy "misguidance" in recent years.
There were two disagreed among Bank Governor Andrew Bailey and Chief Economist Huw Pill who had both signaled in the run-up to Thursday's decision that a rate increase was a real possibility. The investors positioned accordingly.
The data from the Commodity Futures Trading Commission show that hedge funds and speculators in the week to Nov. 2 uped their net long sterling position slightly to 15,047 contracts, worth around $1.3 billion.
The pound's slump could have wiped out many of those positions because of the pound's slump. The exchange rate of sterling, known as "cable", fell 1.4% on the day, its biggest fall since August last year, and trade-weighted sterling had its worst week in 11 months.
Cable fell as low as $1.3422 on Thursday, just above the year low of $1.3410 struck in late September. It appears to be a key chart support now.
The move in UK yields as investors revised their BoE outlook was also dramatic: the five-year gilt yield fell 20 basis points on Thursday, the biggest fall since the day after the Brexit referendum in June 2016; the 10 - year inflation-linked bond yield fell to - 3.16% on Friday, the lowest in almost a year; and the five-year linker yield slumped to a historic low of - 3.73%.
With relative interest rate support diminishing, strategists at Nordea opened a new short position in cable, and make no secret of why. The Bank of England is playing without credibility, they wrote on Sunday.
The direction of sterling from here is dependent on real yields, according to analysts. While UK real rates are falling, sterling will weaken further, according to George Saravelos at the Deutsche Bank.
Hedge funds have had a decline in trading currencies in large part because the foreign exchange market volatility has been so low for so long. Even a month implied sterling volatility is 7% now, a three-week high.
The index fell in October, the worst month for years, and fell into the red for the year, as HFR said its benchmark currency index fell 4.37% in October. It is the only one of HFR's almost 40 featured indexes across a range of asset classes and strategies to be down year-to- date.
Hedge funds thrive on going against the grain. Roberto Mialich, chief of Uni credit's FX strategy chief, said that current long sterling positioning is much lower than it was early this year, suggesting there is still room for investors to increase long exposure to BoE tightening. What would be the expected increase in rates for the Bank of England next month? If history is any guide, the answer is certainly no: there has only been one December rate increase in the last 45 years, in 1994.