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Traders bet £5bn against the pound

·2-min read
pound sterling uk economy
pound sterling uk economy

Market speculators have made a £5bn bet against the pound after cost of living fears sent the currency sliding to a two-year low.

Short positions predicting a further plunge in the pound have hit their highest level since September 2019 as fears of a recession caused by the squeeze on households mount.

Hedge funds and speculators have now increased their bets against sterling for 10 consecutive weeks.

The pound has already slumped by almost 10pc against the dollar this year, hitting a two-year low of $1.21 last week.

Sterling is being hit by a double whammy of recession worries and expectations that the Bank of England will not raise interest rates as aggressively as the US Federal Reserve.

Lee Hardman, currency analyst at MUFG, warned the prospect of the pound slipping below the $1.20 mark is “certainly very possible now”.

He added: “It’s just a reflection of the building pessimism amongst investors over the outlook for the UK economy.

“We're starting to see signs of a notable loss of growth momentum at the end of the first quarter and that's not a good signal for GDP growth as we go into the second quarter, which is already expected to be weaker.

“It’s certainly making investors more nervous over the relative performance of the UK.”

The Bank of England has fuelled recession fears after unveiling a pessimistic set of forecasts for the economy earlier this month. It expects the economy to contract at the end of this year and over 2023 as the cost of living crisis forces households and businesses to tighten their belts.

However, the Bank’s policymakers sought to rein in investor expectations of a period of extremely rapid rate rises to stop inflation running out of control. That has weighed on sterling.

Analysts at HSBC said: “The reality is that the factors driving sterling depreciation are not particularly new. It is just that the issues have become much more challenging and we are unlikely to see notable positive catalysts any time soon.”

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