Investors sell off British pound on ‘horrific’ outlook
The UK’s economic situation is not at all rosy. Andrew Bailey, Governor of the Bank of England (BoE) recently warned of the possibility of an “end of the world” for consumers. More and more investors are selling the British pound.
Like the rest of the world, the UK has been hit by a massive spike in inflation. Life across the North Sea became 9 percent more expensive in April. The Bank of England expects inflation to reach 10 per cent in October.
skip a meal
A recent study found that up to 25 per cent of Britons skip a meal† Billy doesn’t look to the future through rose-tinted glasses. He even recently warned of the possibility of an “end of the world” for consumers. Like other central banks, the Bank of England faces a major challenge: to fight inflation without hurting economic growth too much.
The Bank of England has raised interest rates four times since December. The UK prime rate is currently 1 percent. At his latest interest rate meeting, Bailey did not rule out the possibility of an economic downturn in the last quarter of this year.
So it’s no surprise that investors are broadly selling sterling. The exchange rate of the British currency against the US dollar, which has been windswept in recent months, has fallen by 8 percent since the beginning of this year. For £1 you’re currently paying just under $1.25.
Investors are selling the pound
According to the latest CFTC data on May 10, asset managers and institutional investors took more than 128,000 short trades against the pound for 32,000 long trades.
Sam Ziv, Head of Global FX Strategy at JPMorgan Private Bank, commented on Wednesday CNBC That although the pound is “too cheap” at the moment, investors should look at the euro rather than the pound.
“The European Central Bank has just come out of its negative interest area, while the Bank of England is already in its positive interest area. We don’t think they can really increase that much,” Ziff says. “We have taken a short position on the pound, although we think The coin will straighten its back a bit by the end of this year. It’s really not one of our favorite G10 currencies.”
While the UK, like other central banks, must balance slower growth with inflation well above target, the Bank of England has chosen to give relatively more weight to growth expectations while relying on supply-side factors to bring inflation back to target. (Inflated by 2% ed.)Zack Bundel, a strategist at Goldman Sachs, noted in a note.
“The merits of this approach are debatable, but what matters to the markets is that it is in fact weak currency policy. In light of the divergent policy trajectory of the Bank of England, we are once again adjusting our forecasts for the GBP/USD pair downward to $1.19, $1.22 and $1.25 on 3 and 6 and 12 months.
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