Traders are increasingly sorting into the British pound as the cost-of-living crisis in the UK begins to intensify, CNBC reports.
Inflation rose to 9% a year earlier in April, a 40-year high as food and energy prices continued to rise as the UK energy regulator raised its household energy price ceiling by 54% at the beginning. of the month.
Bank of England Governor Andrew Bailey has warned of a prospect similar to the Consumer Revelation, as a recent survey also found that a quarter of Britons have resorted to skipping meals.
The pound has lost nearly 8% against the dollar year-on-year to date and has been just under $ 1.25 since Friday morning, slightly above the recent two-year low.
The Bank of England is facing the incredible task of raising interest rates in an effort to stabilize inflation expectations while avoiding leading the economy into recession, a balance that seems to be becoming increasingly difficult to achieve. The Bank expects GDP to fall in the last three months of this year and sees a “very sharp slowdown” in the future, but not a technical downturn – two consecutive quarters of contraction.
Sam Zief, head of global foreign exchange strategy at JPMorgan Private Bank, told CNBC on Wednesday that while sterling is “incredibly cheap” at the moment, investors who want to lock in recent dollar gains would be better off looking at euros despite the pounds.
According to the latest figures from the Commodity Futures Trading Commission on May 10, asset managers and institutional investors held more than 128,000 pound sorting positions, compared to just 32,000 long-term placements.
Uncovered sales are an investment tactic where a speculator borrows a financial instrument or asset, such as a stock, and sells it in the hope of buying it again later at a lower price, thus making a profit.
In a research note Tuesday, Goldman Sachs currency analysts said the pound sterling is the Wall Street giant’s strongest view of the G-10 currency at the moment: “While the UK is facing a similar hedge with other major “between slowing growth and inflation well above the target, the BoE has chosen to give relatively more weight to growth prospects, while still relying on supply-side factors to bring inflation to target levels.” said Zach Pandl, co-head of Goldman Sachs Foreign Exchange Strategy.
“While the benefits of this approach are being debated, what matters to the markets is that it is de facto a weak monetary policy. In light of the BoE’s different policy trajectory, we are revising our exchange rate forecast again. sterling / dollar at 1.19, 1.22 and 1.25 at 3, 6 and 12 months (from 1.22, 1.26 and 1.31 previously).
Goldman has already advised investors to trust the euro more against the pound, targeting 87 0.87, and this week also launched a short position in the pound against the Swiss franc, targeting 1.18 and stopping at 1 , 24.
Strategy analysts predict that the Swiss National Bank will take a tougher line against inflation that exceeds its target and will take measures to prevent the devaluation of the real currency.
The European Central Bank has signaled a more aggressive tone in recent weeks and the market is now expected to start raising interest rates in July, between the SNB meetings in June and September.