Speculators increase bets against the pound after the pound fell to the lowest level against the dollar in almost four decades
Speculators stepped up bets against the pound after the pound fell to its lowest level against the dollar in nearly four decades.
Investors are betting on a further decline, fearing the new government will need to borrow more to fund its economic growth plan. This includes an energy package for households and businesses costing up to £150bn.
The value of the pound has fallen nearly 8% against the US dollar over the past month. It has now lost 20% of its value against the greenback since January – hitting $1.09 on Friday.
The latest data from the Commodity Futures Trading Commission shows net bets against the pound totaled £3.4 billion.
The US regulator tracks traders’ position in so-called futures.
This shows that there are almost 55,000 contracts against the pound sterling. A week ago, betting against the pound hit £4.3bn – its highest level in three months. “Investors have doubts about the ability of the UK to finance this package,” said Chris Turner, head of markets at ING bank.
Interest rate hikes, which in theory make the pound more attractive to hold, may not be enough to protect the currency, investors say.
The Bank of England raised the cost of borrowing by half a percentage point to 2.25% last week in a bid to rein in runaway inflation to just under 10%.
The last time there were so many bets against the pound was when Boris Johnson resigned as leader of the Conservative Party, triggering uncertainty in management at a difficult time for the economy.
Before that, sentiment towards the pound had weakened in the aftermath of the Brexit referendum in 2016 and in the run-up to the general election three years later.
While this is good news for exporters, a weak pound can fuel inflation as it raises the price of imports like oil or Chinese-made goods like clothing.
“Tax cuts are no guarantee of a lasting boost to growth,” said Jane Foley, head of currency strategy at Rabobank.