Why investors lost money trading the UK pound

While investors should be cautious about any trading recommendations, a sharp fall in sterling earlier in the year was almost a dead certainty if several currency experts were to be believed. But with the pound trading near nine-month highs against a basket of other currencies, some strategists have been left with egg on their faces.

"I have to put my hand up," David Bloom, global head of foreign exchange strategy at HSBC told CNBC Monday. "I was one of them."
The two-week US government shutdown is the reason behind sterling's strength, Bloom said. The current deadlock in Washington, together with fears that an agreement on raising the debt ceiling might not be reached before the October 17 deadline, has meant many analysts now see the US Federal Reserve delaying the "tapering" of its asset-purchase program. Read More: Bubble trouble? Experts clash over UK housing UK housing shares surge on Goldman's conviction Sterling watchers wary of 'shaky' UK recovery
This prediction that the extra liquidity will continue has meant the US dollar has slipped after a rally in the middle of 2013, and investors have opted for sterling and the euro instead. The pound was trading at USD 1.597 on Monday morning after starting the year at USD 1.624 and collapsing to a low of USD 1.486 in July.
Bloom told CNBC that he had no way to forecast that the US government would be shut down for so long and that it would have had such an effect on the dollar. But Bloom wasn't alone: Hans Redeker, global head of FX strategy at Morgan Stanley said back in May that the broader economic picture in Britain pointed towards a falling pound.
Even in September there was still some bearish calls with Paul Robson, currency strategist at RBS, telling CNBC that the challenges facing the U.K. are likely to push the currency lower within the coming six months. The currency has since appreciated nearly 3 percent since this prediction.
Geoffrey Yu, FX strategist at UBS told CNBC Monday that his own trades on sterling have performed "very very poorly", and the issue being that the Bank of England is more comfortable with a stronger currency than the European Central Bank or the Federal Reserve.
"(The bank is) perhaps even encouraging a stronger sterling to reduce some of the headline inflation prints up ahead," Yu told CNBC.
Angus Campbell, a market strategist at FXPro.com believes that sterling's strength has caught many people off-guard, adding that positive economic data in the UK meant that markets simply didn't believe bearish calls form Mark Carney, the incoming governor of the Bank of England.
"The thinking was that (Mark Carney) would have to raise interest rates far earlier than he has stated, which gave sterling a real boost. Unfortunately, it is often the case that markets have a tendency to move in the direction where it causes the most amount of pain to the most amount of people," he told CNBC.
Despite acknowledging their mistakes, both Bloom and Yu are urging investors to once again short the pound with economic data in the UK too unstable to offer support for the both the recovery and for sterling.
"Growth will slow," Yu told CNBC. "Even if foreign capital is willing to head into the country and fund the UK's widening current account deficit, (sovereign bond) yields need to be higher or sterling lower.
"The Bank of England will almost certainly choose the latter over the former because of the financial and growth risks that higher yields entail. That would be the point to go short."