Sterling's recent rally, which has made it the best performing major currency in the developed world so far this year, may be nearing the end of its run as hedge funds are now cashing in on its 3%-plus gain against the US dollar, according to a report by Bloomberg.

The report cites analysts as saying that the Bank of England's bullish growth forecast last week make the potential for positive surprises far less likely and that the UK's stronger-than-expected economic performance is already well priced in, reducing the potential for further sterling strength.

According to data from the Commodity Futures Trading Commission for the week ending 9 May, leveraged investors have scrapped a position that profits from a stronger sterling and are now the most negative on the currency since December 2021. The pivot came just before the pound hit $1.2680 last week, its highest level against the dollar since April 2022. 

Bloomberg says hedge funds are now net short on sterling at 6,858 contracts after being long for most of the year.