Traders bet £3bn that sterling will fall even further
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Speculators raise bets against the pound after the pound plunges to its lowest level against the dollar in nearly four decades
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Speculators have stepped up their bets against the pound after sterling fell to its lowest level against the dollar in nearly four decades.
Investors are betting on a further decline amid concerns that the new government will have to borrow more to fund its economic growth plan. That includes an energy package for households and businesses costing up to £150 billion.
The value of the pound has fallen nearly 8 percent against the US dollar in the past month. It has now lost 20 percent of its value against the dollar since January, reaching $1.09 on Friday.
The latest data from the Commodity Futures Trading Commission shows that net bets against the pound sterling totaled £3.4 billion. The US regulator keeps track of how traders are positioned in so-called futures contracts. This shows that almost 55,000 contracts have been concluded against sterling. A week ago, bets against sterling were £4.3bn, their highest level in three months. “Investors have doubts about the UK’s ability to fund this package,” said Chris Turner, head of markets at ING bank.
Interest rate hikes, which theoretically make the pound more attractive to hold, may not be enough to protect the currency, investors say. The Bank of England last week raised the cost of borrowing by half a percentage point to 2.25 percent in a bid to curb rampant inflation, which rose to just under 10 percent.
The last time there were so many bets against the pound was when Boris Johnson stepped down as leader of the Conservative Party, leading to uncertainty among leadership at a difficult time for the economy.
Before that, sentiment on sterling weakened in the immediate aftermath of the 2016 Brexit referendum and in the run-up to the general election three years later.
While good news for exporters, a weak pound could fuel inflation as it raises the price of imports such as oil or products made in China such as clothing. ‘Tax cuts are no guarantee for a sustainable growth impulse,’ says Jane Foley, head of currency strategy at Rabobank.