Pound Bears Bet More Than When George Soros Beat BOE

Discussion in 'Wall St. News' started by ASusilovic, Mar 16, 2010.

  1. March 15 (Bloomberg) -- Futures traders are more bearish than ever on sterling amid concern that the currency’s worst annual start in 13 years will continue as the U.K.’s budget deficit approaches the Greek shortfall that roiled the euro.

    Wagers on the pound weakening against the dollar outnumber futures that profit on a rise by eight times more than when George Soros made $1 billion betting against the currency in 1992, the year Prime Minister John Major’s Conservative government was forced to withdraw from the European Exchange Rate Mechanism. Sterling fell 19 percent that year.

    The pound has lost 6.9 percent in 2010 on speculation a budget gap will skewer the currency: Either record borrowing will push debt costs higher and force policy makers to print more money to buy bonds, or lawmakers will cut spending too fast and trigger a new recession. Prime Minister Gordon Brown’s government estimates the deficit will hit 12.6 percent of gross domestic product, almost as high as the 12.7 percent in Greece that drove European leaders to consider a bailout.

    “The risk of a U.K. double dip is substantial,” said Hans-Guenter Redeker, London-based head of foreign-exchange strategy at BNP Paribas SA, which predicts an additional 13 percent drop to $1.31 by the end of 2010. “Sterling is increasingly trading like an emerging-market currency with rising bond yields no longer working in favor of the currency.”

    Ten-year gilt rates have climbed more than a percentage point in the past year, the fastest increase since mid-2004.

    Lower Forecasts

    BNP, whose Sept. 8 forecast for this quarter is closest to the mark in a Bloomberg survey, is now the most pessimistic of 36 strategists. After reducing their median prediction 2 percent in January, strategists cut it 3 percent this month, the quickest drop since September. Twenty-two strategists see the pound ending the year below 2009’s $1.6170 close.

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anZYsKwNSuiY