Some investors don't think the pain for the pound will let up any time soon. The British pound sank to its lowest-ever level against the U.S. dollar Monday before rebounding.
Richard Benson, co-chief investment officer at Millennium Global Investments Ltd. in London, has been shorting the pound, or betting it will fall, since April. The trade has been choppy and messy, he said.
Millennium, which has $20 billion in assets under management, took profits on Friday evening. “I wish we’d been much shorter, we will remain short here,” Mr. Benson said. “From here, it’s hard to picture a positive scenario.”
It’s a no-win situation, Mr. Benson said, because “the solution to the market run on the gilt market and currency weakness is short-term interest-rate hikes, which are detrimental to economic growth.”
Chase Muller, head of global macro at One River Asset Management, has been putting on shorts against the pound and U.K. gilts since around the time the new government came in.
The Stamford, Conn.-based firm, with $2.4 billion in assets under management, trimmed some positions on Friday and Sunday. But the plan is to retain a relatively core short in the currency and in gilts, as Mr. Muller says he thinks there's more to come.
The thinking behind the trade: the U.K has a record current account deficit, which requires large capital inflow to support it. But the opposite has been happening: high inflation and outflows of capital. A large fiscal expansion, accompanied by higher inflation and inflation expectations, puts the currency at further risk, Mr. Muller said.
If the Bank of England does raise rates, Mr. Muller thinks it should cast an emergency rate hike in a framework that is looking to get a jumpstart on tighter monetary policy, not aimed specifically at the pound, he said.
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September 27, 2022 at 04:05AM
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Stock Market Today: Dow Falls 325 Points Into a Bear Market, British Pound Drops To Record Low Against the U.S. Dollar - The Wall Street Journal
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