LONDON (Reuters) – Selling pounds has been a favourite game of the $5.1 trillion-a-day global currency market for over two years. But as the Brexit endgame plays out and ‘worst case’ scenarios ebb, market metrics and dynamics show sterling may have weathered the storm.

Since late-December, investors who normally rely on weekly data from the Commodity Futures Trading Commission (CFTC) to gauge positioning in major currencies have flown blind, as the U.S. government shutdown prevents the release of the figures.

The CFTC figures, the closest proxy to changes in investor positioning, showed that speculators had a net $4.84 billion short position on the pound versus the dollar on Dec. 21 — the last date on which data was available.

As a measure of bets on sterling to weaken, that was off a $6.5 billion net short touched in September 2018. It has likely been cut even further since then, even if the overall bias remains negative, various data sources examined by Reuters show.

Without CFTC data, banks’ internal flows may provide the clearest glimpse into position shifts and data compiled by some of the biggest institutions — BNP Paribas, Royal Bank of Canada, Bank of America Merrill Lynch, Morgan Stanley and Scotiabank — indicate pound positions have seen some big swings since the data was shut off.

BNP Paribas’s FX positioning tracker, for instance, shows that on a scale of +50/-50, sterling ‘shorts’ had been pared back in the week to Jan. 21 for a score of minus 18, versus minus 23 the previous week. The score had ended 2018 at minus 30.

Similarly, RBC Capital Markets’ quant trading team reckons that, when compared to the largest ever short sterling position versus the dollar hit in October 2016, investors are currently only short around 19 percent of that level.

Net shorts were a third of the record level at the end of 2018. Against the euro, markets are actually now long sterling on a net basis, RBC said.

Another index, compiled by currency fund Millennium Global Investments, shows pound positioning at just minus 0.3 on a scale of -5/+5. It was minus 1.7 a month ago.

“The question is how quickly sterling positioning is being rebuilt, based on potential for a second referendum, a general election or just softer Brexit,” said Claire Dissaux, Millennium’s head of global economics and strategy.

“Most (investors), if not all, have decreased the possibility of disorderly Brexit which has shifted sentiment towards sterling.”

Banks’ flow indicators are based on a mix of sales trading flow they see from their various clients, data from their quantitative trading teams and other derivative markets data.

FLOWS

The position changes stem from growing conviction in markets the UK parliament will not allow a “hard” or no deal Brexit, and could force a second referendum, delaying or even reversing Brexit. That view is reflected in flows tracked by banks — Bank of America Merrill Lynch for instance found that hedge funds as well as “real” money piled into sterling in the past week.

Hedge funds are already long sterling, BAML estimates.

“Markets are pricing out the probability of a no-deal Brexit and that has boosted the pound in recent days and we see strong demand for the British currency below $1.2850 levels,” Kamal Sharma, BAML’s director of G10 FX strategy said.

Chances of a Brexit delay have grown further as the opposition Labour Party indicated it would back a legislative amendment which would extend the exit process until end-2019.

Data from Refinitiv shows steady selling of the euro against the pound — the cleanest currency pair for those wanting to trade Brexit headlines — for most of January. The selling pressure has accelerated over the last week or so, data showed.

The unwinding of shorts is also reflected in option markets — investors’ favoured way for many months to protect against a weakening pound. But traders now report growing demand to flip those positions and hedge against further sterling gains over the months ahead.

Sterling risk reversals — a gauge of expectations for a currency’s direction measured by comparing the relative cost of options to buy and to sell the pound show the premium on calls, or options to buy, on one-month contracts recently hit seven-month highs.

One implication of the short position snapback is that sterling may be running out of steam to appreciate without further positive news on the Brexit front – the shorter the positioning, the greater the rebound.

And with Prime Minister Theresa May battling to break a parliamentary deadlock, fears of no-deal Brexit haven’t entirely faded either.

So while the pound has rallied more than 4 percent off 21-month lows around $1.24 hit earlier this month, it remains more than 10 percent below a 2018 high of $1.43.

A number of financial advisors have urged clients not to overestimate their ability to make bets on British politics.

Some large institutional investors also are also cautious.

James Bateman, CIO at Fidelity International, said neutral was his preferred stance for now.

“We have powder dry ready to deploy by being neutral,” he said. “We can take advantage of a move in either direction.”