Speculators ramp up bets against pound

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

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Investors are betting on a further fall amid fears that the new government will need more borrowing to finance its economic expansion plan. This includes an energy package for households and businesses worth up to £150 billion.

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The value of the pound sterling has fallen by almost 8% against the US dollar over the past month. It has lost 20% of its value against the US dollar since January, hitting $1.09 on Friday.

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The latest figures from the Commodity Futures Trading Commission show net betting against the pound sterling at £3.4 billion.

The US regulator monitors the position of traders in the so-called futures contracts.

This shows that there are almost 55,000 contracts against the pound sterling. A week ago, rates against the pound reached £4.3 billion, the 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.

Investors say the interest rate hike, which theoretically makes the pound more attractive to hold, may not be enough to protect the currency.

The Bank of England increased the cost of borrowing by half a percentage point to 2.25% last week in an attempt to tame runaway inflation, which is just under 10%.

The last time there was so much betting against the pound was when Boris Johnson stepped down as leader of the Conservative Party, sparking leadership uncertainty at a difficult time for the economy.

Prior to this, attitudes towards the pound sterling weakened immediately after the Brexit referendum in 2016 and ahead of the general election three years later.

While this is good news for exporters, a weak pound could spur inflation as it raises the price of imported goods such as oil or Chinese-made goods such as clothing.

“Tax cuts are no guarantee of a sustained acceleration in growth,” said Jane Foley, head of FX strategy at Rabobank.

Credit: www.dailymail.co.uk /

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