Traders bet £3bn that sterling will fall even further

Speculators ramp up bets against pound after sterling falls to lowest level against dollar in nearly four decades

Speculators have ramped up bets against the pound after sterling fell to its lowest level against the dollar in nearly four decades.

Investors are betting on a further fall amid concerns that the new Government will need to borrow more to fund its economic growth plan. That includes an energy package for households and business costing up to £150billion. 

The pound’s value has dropped almost 8 per cent against the US dollar in the past month. It has now shed 20 per cent 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 sterling totalled £3.4billion. The US regulator tracks how traders are positioned in what are known as futures contracts. This shows there are almost 55,000 contracts out against sterling. A week ago bets against sterling hit £4.3billion – 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 rises, which in theory make sterling more attractive to hold, may not be enough to protect the currency, investors say. The Bank of England increased the cost of borrowing by half a percentage point to 2.25 per cent last week in an effort to tame rampant inflation, running at just under 10 per cent. 

The last time there were so many bets against the pound was when Boris Johnson resigned as leader of the Conservative Party, triggering leadership uncertainty at a difficult time for the economy. 

Before that, sentiment towards sterling weakened in the immediate aftermath of the Brexit referendum in 2016 and in the run-up to the General Election three years later. 

While good news for exporters, a weak pound can fuel inflation as it increases the price of imports like oil or products made in China, such as clothing. ‘Tax cuts are not a guarantee of a sustained boost to growth,’ said Jane Foley, head of foreign exchange strategy at Rabobank.