- Bets against the pound are gathering pace amid speculation that any Bank of England efforts to curb inflation would darken the outlook for growth and consumer sentiment.
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None They invented the Must-Have Instrument for the Burning Man Set. Speculators ramped up wagers on the currency s decline at the fastest rate in more than two years, Commodity Futures Trading Commission data show, further breaking the link between anticipated rate increases and anticipated gains. Meanwhile, strategists at Canadian Imperial Bank of Commerce, Societe Generale SA and RBC Europe Ltd. bracing for the pound to collapse to levels last seen in late 2020.
Money markets raised their expectations for BOE tightening on Monday, anticipating a 15-based-point increase in December and another 50-level basis points in August. The prospect of rapid policy tightening is raising concern that the possibility of several rate hikes will hurt confidence among consumers already grappling with soaring energy prices and supply chain disruptions.
It all happening faster than forecast, said Kit Juckes, Chief Foreign Exchange Strategist in Societe Generale, who sees the pound fall to $1.32. If the BOE is tighter than the teeth of a slowdown, it could quite quickly be seen as a mistake. Sterling held steady at $1.3597 by 1: 50 p.m. in Tokyo after crossing $1.3674 on Monday, the highest level since two weeks ago. Traders are adding bets on pullback, with three-month risk reversals signaling sentiment is near the most bearish in seven months.
Bank of America strategists say the phenomenon of low inflation and high growth seems to be hitting the UK harder than most, and any strength in the pound is an opportunity to sell. The currency could end the year little changed at $1.37, analyst Kamal Sharma said, adding that his colleagues are concerned about the squeeze in real incomes caused by high inflation and the end of the furlough.
Michael Saunders, one of the most hawkish members of the Monetary Policy Committee, suggested to investors that they were right to bring forward bet on rate hikes in remarks published Saturday. Hours before Governor Andrew Bailey warning of a potentially very damaging period of inflation unless policy makers take action.
Jeremy Stretch, head of the CIBC's G 10 foreign exchange strategy, noted that tightening could raise costs on liabilities such as mortgage payments and deter households from spending.
A rate hike would risk undermining the recovery narrative in the U.K., said Stretch, who predicts a decline of more than 1% to around $1.34.
Adam Cole, who is seeing the pound fall from 4% to $1.30 in year-end, will see higher rates as a key driver for his pessimism about U.K. currency.
Concerns about central bank moves are simply adding to the real income squeeze that lower energy prices and tighter fiscal policy are already delivering, he said.
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